MARKET RESEARCH

Market research is the process of gathering and interpreting information about customers and potential customers. Research is needed because buying behaviors are sometimes difficult to predict or explain. If a marketer fails to take into account the customers' interests and motivations, which are learned through market research, the marketer may be trying to sell a product or service that is ill-suited for its target users. People may buy only after carefully studying a product's features and benefits. They may buy after seeing a well-executed advertisement over and over again. Or, they may buy after hearing about a good product from their friends and colleagues. They may even purchase on a whim without knowing anything at all about the product because the packaging caught their eye while walking down the supermarket aisle.

Research attempts to understand and explain buying patterns so that a company's marketing strategy can attract the most customers (or more accurately, the highest profits) per dollar spent on marketing. As John Wanamaker, the famed New York department store owner who hired the first advertising copywriter, said in the 1880s, "I know half the money I spend on advertising is wasted, but I can never find out which half." Market research tries to solve that dilemma.

Corporations come to understand their markets in many different ways. A few common methods include:

• using company intelligence to learn competitors' strategies
• analyzing past sales data to glean purchasing trends
• surveying present customers or a target audience
• evaluating demographic data, such as from the U.S. census, to infer market shifts

Market research is critically important but remains imperfect. Although new products are usually researched before introduction, more than 80 percent fail. Campbell Soup Co. once conducted an exhaustive market research study on sales of their products and on their customers. They discovered that the company wasted more than 60 percent of its marketing dollars targeting people who never buy from a particular product category or those were loyal to other brands. They also found that the small segment that were loyal Campbell's customers delivered three times the profits that occasional Campbell's buyers did. This meant that the coupons delivered to regular Campbell's customers took money away from the bottom line since those people would have bought the product anyway.

HISTORY OF MARKET RESEARCH

Advertising was not tested in the United States until the 1920s. Until that time copywriters would write what they thought an ad should be, publish it, and hope that readers acted upon the information. During the 1920s, Daniel Starch began expanding his educational surveys into advertising. From those surveys he developed a theory that effective advertising must be seen, read, believed, remembered, and acted upon. By the 1930s he had launched a company that interviewed people in the streets, asking them if they read certain magazines. If they did, his researchers would show them the magazines and ask if they recognized and remembered ads in them. He then compared the number of people he interviewed with the circulation of the magazine to extrapolate how effective those magazine ads were in reaching readers.

Various market research companies started following Starch's example and improved on his techniques. George Gallup (1901-84) developed a rival system of "aided recall" that prompted people to recall the ads they had seen without actually showing the ads. Gallup was able to adapt this system to measure radio and television advertising.

Throughout the last 70 years, market research has grown much more sophisticated as well as pervasive. One survey of surveying activity found that 73 percent of Americans said they had participated in a survey with 42 percent having been also surveyed in the previous year.

TYPES OF MARKET RESEARCH

AUDIENCE RESEARCH.

Research on who is listening, watching, and reading are all important to marketers in order to determine which media are best suited for reaching a target audience. Television and radio ratings determine popularity of shows and how large of an audience can be reached during show broadcasts. Publication subscription lists are audited by tabulating companies that cross-check magazine subscription records to make sure the people receiving the publications have either subscribed or requested the publication.

In the early days of television, selected viewer families kept diaries or logs of their viewing habits. Completed logs were mailed to the A.C. Nielsen Company, which then compiled the results. In 1986 the log gave way to a people meter that allows viewers to punch buttons on a remote control-like device that records viewers' choices automatically.

While not yet in place, inventors are experimenting with devices that will no longer depend on viewers, listeners, or readers to actively tell researchers about their habits. The researchers may soon be able to get all the information they need from devices placed in the home. One device under study would be a television capable of looking back at viewers. It would store digitized images of its "television family" in its memory banks then regularly record if they are in the room. The device would even record whether their faces are turned toward the TV to prove they are looking at the show and its accompanying commercials.

Another device under development would not only monitor when people are watching television, but would know when they are reading advertising-filled magazines. The device would record pulses coming from a television or radio and from a transmitter cleverly hidden in the publication's bindings.

The devices sound Orwellian, which is what is slowing their development and implementation. Broadcasters are not sure they want to cooperate with the transmission of the imperceptible pulses, while advertisers are leery about appearing too eager to know everything their customers do in the privacy of their own homes.

PRODUCT RESEARCH.

Simple in-person research such as taste tests conducted in malls and in the aisles of grocery stores is market research. So is elaborate, long-term "beta testing" of high-tech products, particularly software, by experienced users. While advertising agencies formerly conducted much of the product research, that function has also moved into the marketing department of advertisers.

Product research can be simple: tweaking the taste of an existing product, then measuring consumers' reactions to see if there is room in the market for a variation. Or, it could be more extensive: developing prototypes of proposed new products that may be intended for market introduction months down the road. Other kinds of product research include:

• researching the appeal of a new product's proposed name
• testing new packaging
• identifying new markets or selling points for an existing product
• testing new pricing
• testing an advertising campaign

As in all research, there is a danger to paying too much attention to the wrong things. The introduction of New Coke in the 1980s was based on the outcome of taste tests that showed the public wanted a sweeter product. Once introduced, an angry public, outraged that Coca-Cola changed the familiar formula, forced the company to ignore its misdirected market research and leave the original Coke on the market. The company had looked closely at taste test studies, but failed to factor in research that showed consumers were happy with the product as is.

BRAND RESEARCH.

Brands, the named products that advertising pushes and for which manufacturers can charge consumers the most money, are always being studied. Advertisers want to know if consumers have strong brand loyalty ("I'd never buy another brand, even if they gave me a coupon"); if the brand has any emotional appeal ("My dear mother used only that brand"); and what the consumer thinks could be improved about the brand ("If only it came in a refillable container").

Brand research has its perils. Campbell's Soup once convened a focus group comprised of its best soup customers. One of the findings was that those customers saw no need for a low-salt alternative soup Campbell's wanted to market. Concerned that the general public seemed to want low-sodium products, Campbell's retested groups other than their best customers. This research found a market interested in a low-sodium soup. The loyal Campbell's customers loved the saltier product as is, while a larger group of potential customers preferred the low-salt alternative.

PSYCHOLOGICAL RESEARCH.

Perhaps the most controversial type of market research is psychological research. This research tries to determine why people buy certain products based on experimentally derived profiles of the way consumers live their lives. One company has divided all Americans into more than 60 psychological profiles. This company contends that the lifestyles these people have established by past buying habits and their cultural upbringing influence their buying decisions. The researchers assert that individual differences can sometimes be negated.

This research continues to be controversial since it measures attitudes about buying and not the buying itself. Critics point to conflicting information uncovered through other market research studies. In one series of research projects researchers asked people what they were planning to buy before entering a store. After the people surveyed left the store, the same researcher examined what was actually in the shopping cart. In one such study only 30 percent of the people bought what they said they were going to buy just a half hour earlier.

SCANNER RESEARCH.

There is no fooling the checkout scanner at the supermarket or the department store. It records what was actually purchased. This is valuable information advertisers use to help plan ongoing marketing strategies.

Scanners have changed the way advertisers have typically thought about the sale of consumer products. Before scanners, advertisers received sales information when retailers reordered stock, generally every two weeks. Advertisers had no way to quickly measure the effect of national advertising-supported sales promotions, store sales promotions, or the couponing of similar products by their competitors.

Now, computer technology can send scanner information to advertisers within days or even hours. What scanners have so far confirmed is that consumers are fickle. They may try a product heavily promoted through national television one week. Then the next week they may switch brands based on local promotions from the competition.

DATABASE RESEARCH.

Virtually every type of consumer shows up on thousands of lists and databases that are regularly cross-referenced to mine nuggets of marketing research. Such database research, associated with database marketing, is growing in popularity among marketers because the raw data has already been contributed by the purchaser. All the marketer has to do is develop a computer program to look for common buying patterns.

Database research can be thought of as the ultimate in market segmentation research. For example, from zip codes lists, marketers may determine where the wealthy people live in a city. That list can be merged with a list of licensed drivers. The resulting list can be merged with another list of owners of cars of a certain make older than a certain year. The resulting list can be merged with another list of car enthusiast magazine subscribers. The final compiled and cross-checked list will deliver a potential market for a new luxury car soon to be introduced and profiled in the car magazines. The people on the potential buyers' list would then be mailed an invitation to come see the new car.

Database research and marketing allow companies to build personal relationships with people who have proven from past purchases that they are potential customers. For example, a motorcycle manufacturer such as Harley-Davidson may discover from database research that a family with a motorcycle has a teenage son. That son is a potential new customer for everything from clothes to a new motorcycle of his own. In another example, movie rental giant Blockbuster Entertainment can suggest titles its customers might want to rent based on a check of its database for the types of movies people have rented in the past.

This personal relationship also provides a basis for more detailed and economical market research than might be possible from conducting random calling. From that research, marketing sometimes follows. For example, General Motors Corp., which has collected a database of 12 million GM MasterCard cardholders in just two years, surveys them to determine what they are driving now and when they might buy a new car. GM's logic: why spend millions of dollars trying to sell to total strangers when you have a list of millions of people you already know?

POST-SALES OR CUSTOMER SATISFACTION RESEARCH.

Companies no longer believe that the sale ends their relationship with a customer. Nearly one-third of the research revenues generated by the leading U.S. research companies concern customer satisfaction. Many companies are now waiting a few days or weeks, then surveying customers by telephone. Companies want reassurance that the customer enjoyed the buying experience and that the product or service lived up to the buyer's expectations.

One research company uses a one dollar check to encourage customer satisfaction responses. It prints a customer survey on the back of the check that is returned when the customer cashes the check. The survey company thus secures a short, but complete, survey of customer satisfaction. Such research can be even more personal. Honda once developed a program in which assembly line workers called new Accord owners to ask them what improvements could be made in the car.

The reason for this sort of research is to ensure current customers are happy and will consider themselves future customers. One study found that 70 percent of customers believe it is important that companies stay in contact with them, but that less than a third of those same customers reported that they had heard from companies whose products they purchased. Nearly 90 percent of those surveyed said they would choose a company's products if it stayed in touch with them and sought their satisfaction.

METHODS OF PERSONAL RESEARCH

CLOSED-ENDED QUESTIONS.

The type of research most people experience is filling out a comment card or questionnaire at a restaurant or hotel asking about the service they received. Another common research method is a telephone survey in which interviewers read from a carefully prepared list of questions designed so answers can be categorized and tabulated by computer.

Both of these are considered closed-ended, meaning that the person being surveyed cannot expound on their answer. Such surveys usually ask for "yes" or "no" answers or several measures of multiple choice opinion (e.g., "extremely interested," "somewhat interested," or "not interested at all"). This type of market research is generally conducted to elicit opinions and beliefs of the public. It is commonly used for political polling and to determine the awareness or popularity of a product or service.

The inherent problem with multiple-choice questionnaires that ask for clear-cut answers is that many people do not think in a clear-cut fashion. If not carefully prepared, closed-ended questions may elicit answers that do not provide a clear view of the person being surveyed. Sometimes, the company conducting the survey may intentionally or inadvertently write questions that elicit the answers it wants to get rather than a true picture of what is happening in the marketplace.

OPEN-ENDED QUESTIONS.

Although they are useful for soliciting insights or concerns that the marketer hasn't anticipated, open-ended questions tend to be frowned upon in market research. They present two challenges: (1) they can produce answers that are ambiguous and hard to compare because the respondents aren't relying on a fixed vocabulary to describe their thoughts and behaviors, and (2) they require more time and effort to analyze. Some marketers may favor open-ended questions in hopes of uncovering significant new feedback from their current or potential customer base, but experienced market researchers have found that this rarely occurs. Particularly if the research involves an established product or service, researchers find there is usually a predictable spectrum of opinions or responses to a given question; few respondents volunteer profound new ideas. As a result, in most kinds of research experts prefer to keep open-ended questions to a minimum and use them only when they serve a specific purpose.

DRAWBACKS.

There is a problem in both closed- and open-ended questionnaire research, particularly that conducted over the telephone. The person answering the questions could grow increasingly bored or, worse, annoyed at the time it takes to answer the questions. Once they become bored or annoyed, people stop giving true opinions.

One company that has researched the problem of bored interviewees found that falloff in attention can begin as soon as one minute after the person starts answering questions. This also held even when people filled out questionnaires on their own time. The company believes that the longer the person is annoyed, the higher the likelihood that the value of the questionnaire is reduced.

Another study showed that 31 percent of Americans say they refuse to answer marketing research surveys. The survey conductors speculate that the high resistance is a result of consumers lumping telemarketing and survey calls together. Both frequently come at the dinner hour, when many people do not want to participate.

FOCUS GROUPS.

In-person, sit-down sessions around a table with groups of consumers, would-be consumers, never-buyers, or any other demographic group a company wishes to bring together are called focus groups. This can be the most inexpensive type of research when handled on a local basis by a small business wanting to get a handle on its customers. Or, it can be one of the most expensive if a major corporation wants to test its plans in all sections of the country.

Small businesses may invite a focus group to a neighborhood home to sit around the dinner table to discuss how the company can develop new markets. Major corporations conduct their focus groups in a controlled environment, sometimes with a one-way mirror at one end. This allows executives to unobtrusively watch the proceedings and/or to videotape the session for further study.

The key to gathering good information from a focus group is for the moderator to keep the conversation flowing freely without taking a side. If a company is interested in launching a new product, the moderator usually does not even mention the company that is hosting the focus group, not wanting opinions already formed about the company's other products to influence the discussion. The moderator's job is to involve everyone in the session and prevent any individuals from dominating the conversation. The latter danger is called "The Twelve Angry Men," named after a Henry Fonda movie in which a talkative, persuasive Fonda slowly influences 11 other jury members to acquit a man being tried for murder.

Researchers agree that focus group research should be accompanied by other types of research and not be the sole basis for launching new products. The reason is that opinions expressed among strangers may not always reflect the way people would react when alone. For example, a focus group discussing low-fat foods may garner an enthusiastic response from people who want to be publicly perceived as being concerned about their health. The same people, however, might say they never buy low-fat products if questioned during an anonymous phone interview.

RESEARCH AGENCIES

Marketers often outsource their research to outside agencies when they lack the staffing or the expertise to conduct extensive research on their own. Numerous market research firms exist, many of which are quite specialized to a particular trade. These outside suppliers of research range from small one-person consultancies to large multibillion-dollar corporations. Working with a research supplier is often a highly interactive process. The marketer needs to determine if the research agency has sufficient knowledge and skills to produce reliable results; the supplier needs a great deal of information about the product being marketed, its strengths and weaknesses, the marketer's goals, and so forth in order to construct an effective research project.

RESEARCH STANDARDS AND ETHICS

Most professional market research organizations abide by some formal or informal code of ethics. Many of the marketing trade groups like the American Marketing Association and the Marketing Research Association have published standards of ethical practices and require their members to adhere to them. Managers should be aware of ethical standards as they supervise in-house research and contract out to other firms. Some examples of unethical research methods:

• leading a respondent toward a specific answer in a survey, either directly or indirectly
• disclosing a respondent's name or other personal information if they have been told it was an anonymous survey
• interviewing young children without parental consent
• disguising a sales or fundraising pitch as market research, or using research participants subsequently as sales leads based on information obtained from the research

ANALYZING MARKET RESEARCH

Once market data have been collected by reliable means, the goal of market research is to extract as much meaning from the information as possible. Usually this starts by tabulating results, e.g., 34 percent of respondents have heard of the brand and 60 percent represent middle-income households, but only 13 percent buy it regularly. Depending on the type of questions asked and the marketer's objectives for the research, the analysis may involve a host of more sophisticated statistical analyses. Statistical methods may be used to answer the following questions, among many others:

• are the apparent relationships between variables in the study statistically significant or could they easily occur at random?
• what is the margin of error for the findings?
• what kind of patterns could be projected into the future based on past indications?
• what demographic factors best predict a loyal customer and which ones appear irrelevant?
• what are the meaningful segments in the market?
• which aspects of the product or service are most valued by consumers?

Knowledgeable answers to such questions require an understanding of both the data and appropriate statistical methods. Consequently, introductory textbooks on market research often include a heavy dose of statistical theory.

REPORTING MARKET RESEARCH

The final step in most formal research projects is to present the findings to the decision makers. Though it may include many pages of supplementary tables and charts, the essential research report for management is usually one or two pages. The report explains the nature of the research—what it was trying to learn and by what methods—and conclusions from it—what was learned and how it affects the company. A good report not only summarizes the statistics compiled from the research, but goes further to cautiously interpret their significance for the business and what they suggest for the future.