The term market research encompasses a number of activities that are designed to connect marketers to consumers through information gathering and evaluation. Market research provides businesses with information about their customers, their competitors, and their overall industry. It is commonly used to identify marketing problems and opportunities, as well as to develop and evaluate the effectiveness of marketing strategies. Small business owners, because of their usually limited financial resources, have a particular need for adequate, accurate, and current information to aid them in making decisions. Market research can help entrepreneurs evaluate the feasibility of a start-up venture before investing a great deal of time and capital, for example, as well as assist them in effectively marketing their goods and services. Employing such marketing strategies as market segmentation and product differentiation would be nearly impossible without first conducting market research.
Although market research can be costly, it is often even more costly to make erroneous decisions based upon bad or inadequate information. In fact, an average business spends between 25 and 50 percent of its annual marketing budget on research activities. Conducting large-scale market research in-house is not possible for many small businesses, since it requires a comprehensive understanding of the problem to be addressed, the market, and the application of research procedures. But there is a great deal of helpful information available to entrepreneurs who know where to look, and there are many consultants, advertising firms, and market research specialists who offer their services to small businesses for a fee.
The information gathered through market re-search can be divided into two main categories. The first category—primary information—generally does not exist in a coherent form before the marketer gathers it in response to a particular question or problem. The most common methods of gathering primary market research information are through direct mail, telemarketing, and personal interviews. The other category—secondary information—has already been compiled and organized by a source other than the marketer. Rather than looking at a specific marketing problem faced by an individual company, secondary information generally tracks trends within a market, an industry, a demographic group, or a geographic region. A great deal of valuable secondary information is available to small business owners at little or no cost. Some possible sources of secondary market research information include government reports, trade association records, newspaper and magazine surveys, university-sponsored research, local chamber of commerce records, on-line services, and competitors' annual reports.
Market research can provide small business owners with the information they need to answer a wide range of questions, including: Who are my customers? Where are they located? How much and how often will they buy? and What product attributes do they prefer? Given the importance of market research—and its potential cost—experts recommend that businesses follow a step-by-step approach in order to gain the most benefits from their research activieties.
The first step in the market research process is to define the marketing problem to be addressed. Next, a marketer should determine what information is needed to solve the problem, as well as what sources should be used to acquire the information. Many businesses make a preliminary investigation at this early stage in order to give their definition of the problem more focus and to develop tentative answers that can be tested during the next stage of the process. The third step involves planning the research. This step includes selecting the techniques to be used for gathering data and deciding on an appropriate group, or sample, to be included in the research. Fourth, a marketer actually gathers the necessary data. The fifth step involves analyzing and interpreting the information that has been gathered. Finally, the marketer reaches a conclusion about the marketing problem and translates the findings into changes in the firm's overall marketing strategy.
There are three general types of market research suppliers that can assist small businesses with one or more steps in the above process. Some firms specialize in conducting overall market research that they release to a variety of clients for a fee. This type of firm includes syndicated services such as A.C. Nielsen and Company, which provides viewership ratings for national television programs. There are also custom market research firms that handle all aspects of the process, from defining the marketing problem and designing research techniques to evaluating results and formulating new marketing strategies. In contrast, smaller, specialty line suppliers usually concentrate on one aspect of the process. Marketers who wish to secure the services of a market research firm usually obtain bids from a number of suppliers. The following sections provide more information about the various types of market research that such suppliers perform.
AUDIENCE RESEARCH Research on who is listening, watching, and reading is important to marketers of television and radio programs and print publications—as well as to advertisers who wish to reach a certain target audience with their message. Television and radio ratings demonstrate the popularity of shows and determine how much stations can charge for advertising spots during broadcasts. Publication subscription lists, which are audited by tabulating companies to ensure their veracity, are important in determining the per page rate for advertising.
PRODUCT RESEARCH Product research includes simple, in-person research such as taste tests conducted in malls and in the aisles of grocery stores, as well as elaborate, long-term "beta testing" of high-tech products by selected, experienced users. The objective of product research can be simple; for example, a company may tweak the taste of an existing product, then measure consumers' reactions to see if there is room in the market for a variation. It can also be more extensive, as when a company develops prototypes of proposed new products that may be intended for market introduction months down the road.
In product research, as in all market research, there is a danger to paying too much attention to the wrong things. For instance, the introduction of New Coke was based on the outcome of taste tests that showed the public wanted a sweeter product. But later an angry public, outraged that Coca-Cola was planning to change the familiar formula, forced the company to ignore its taste tests and leave the original Coke on the market. The company had put too much stock in the results of the taste test studies, and had failed to factor in research that showed consumers were happy with the product as it was.
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, too, 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, 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 type of research tries to determine why people buy certain products based on a profile of the way the consumers live their lives. One company has divided all Americans into more than 60 psychological profiles. This company contends the lifestyles these people have established, based upon their past buying habits and their cultural upbringing, influences their buying decisions so strongly that individual differences can sometimes be negated.
Psychological research is controversial because it measures attitudes about buying rather than 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 they entered a store. After the people surveyed left the store, the same researcher examined what was actually in their shopping carts. Only 30 percent of the people bought what they had said they planned to buy just a half hour earlier.
SCANNER RESEARCH In contrast, there is no fooling the checkout scanner at the supermarket or the department store: it records what was actually purchased. This is valuable information an advertiser can use to help plan an ongoing marketing strategy. Scanner technology has changed the way advertisers track the sale of consumer products. Before scanners, advertisers received sales information only when retailers reordered stock, generally every two weeks. This meant that the advertisers had no way to quickly measure the effect of national advertising, in-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.
DATABASE RESEARCH Virtually every type of consumer—credit card holders, smokers, drinkers, car buyers, video buyers—shows up on thousands of lists and databases that are regularly cross-referenced to mine nuggets of marketing research. Database research 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 tool in market segmentation research. For example, from zip code 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 subscribers to car enthusiast magazines. The final 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 could then be mailed an invitation to come see the new car.
Database research also allows 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. Maintaining a personal relationship with customers also provides businesses with a basis for more detailed and economical market research than might be possible through random sampling.
POST-SALES OR CUSTOMER SATISFACTION RESEARCH Most companies no longer believe that a sale ends their relationship with a customer. Nearly one-third of the research revenues generated by the leading American market research firms concern customer satisfaction. Many companies now wait a few days or weeks, then contact customers with survey questionnaires or telephone calls. Companies want reassurance that the customer enjoyed the buying experience and that the product or service has met the buyer's expectations.
The reason behind post-sales research is to ensure that current customers are happy, will consider themselves future customers, and will spread positive word-of-mouth messages about the product and company. One study found that 70 percent of customers believed it was important for companies to stay in contact with them, but less than one-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 be more likely to choose a company's products if it stayed in touch with them and sought their satisfaction.
CLOSED-END QUESTIONNAIRE A closed-end questionnaire is the type of market research most people have experienced. It includes such common activities as filling out a comment card at a restaurant or responding to a telephone survey. In closed-end questionnaires, the person being surveyed cannot expound on their answers. Such surveys usually ask for "yes" or "no" responses or for measures of multiple choice opinion (e.g., "extremely interested, " "somewhat interested, " "not interested"). This type of market research is generally conducted to elicit the 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 receive, rather than answers that provide a true picture of what is happening in the marketplace.
OPEN-ENDED QUESTIONNAIRE Over time, market researchers have grown increasingly aware that people often have opinions that do not fit into a multiple-choice questionnaire. To capture these opinions and try to analyze them, researchers are shifting toward open-ended research—asking people to say exactly what is on their minds. For example, manufacturers are giving customers plenty of space on questionnaires to explain their likes and dislikes about products and services, and telephone researchers will frequently mix closed-end and open-end questions on the same survey to try to delve deeper. A "no" response to whether a person watches a particular cable television station may trigger a follow-up question of "Why not?, " for instance, and the answer will be taken down word for word.
A problem with both closed- and open-ended questionnaire research, particularly when conducted over the telephone, is that people gradually become bored or annoyed and stop providing their true opinions. In addition, some studies have shown that a large percentage of Americans refuse to answer marketing research surveys.
FOCUS GROUPS In-person, sit-down discussions 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 least expensive type of market 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 various sections of the country. Small, local businesses may invite a focus group to a neighborhood home to sit around the dinner table and discuss how the company can develop new markets. In contrast, most major corporations conduct their focus groups in a controlled environment, usually with a one-way mirror at one end of the room. This allows executives to observe the proceedings unobtrusively 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. The moderator's job is to involve everyone in the discussion and prevent any individuals from dominating the conversation. Most market research experts 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.
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SEE ALSO: Focus Groups