The term market means different things to different people. We are all familiar with the supermarket, stock market, labor market, fish market, and flea market.
All these types of markets share several characteristics:
First, they are composed of people (consumer markets) or organizations (business markets).
Second, these people or organizations have wants and needs that can be satisfied by particular product categories.
Third, they have the ability to buy the products they seek.
Fourth, they are willing to exchange their resources, usually money or credit, for desired products.
In sum, a market is
(1) people or organizations with
(2) needs or wants and with
(3) the ability and
(4) the willingness to buy.
A group of people or an organization that lacks any one of these characteristics is not a market.
Within a market, a market segment is a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. At one extreme, we can define every person and every organization in the world as a market segment because each is unique. At the other extreme, we can define the entire consumer market as one large market segment and the business market as another large segment. All people have some similar characteristics and needs, as do all organizations.
From a marketing perspective, market segments can be described as somewhere between the two extremes.
The process of dividing a market into meaningful, relatively similar, and identifiable segments or groups is called market segmentation . The purpose of market segmentation is to enable the marketer to tailor marketing mixes to meet the needs of one or more specific segments.
The Importance of Market Segmentation (history)
Until the 1960s, few firms practiced market segmentation. When they did, it was more likely a haphazard effort than a formal marketing strategy. Before 1960, for example, the Coca-Cola Company produced only one beverage and aimed it at the entire soft drink market. Today, Coca-Cola offers more than a dozen different products to market segments based on diverse consumer preferences for flavors and calorie and caffeine content. Coca-Cola offers traditional soft drinks, energy drinks (including POWERade), flavored teas, fruit drinks (Fruitopia), and water (Dasani).
Market segmentation plays a key role in the marketing strategyof almost all successful organizations and is a powerful marketing tool for several reasons:
Most important, nearly all markets include groups of people or organizations with different product needs andpreferences.
Market segmentation helps marketers define customer needs and wants more precisely.
Because market segments differ in size and potential, segmentation helps decision makers to more accurately define marketing objectives and better allocate resources. In turn, performance can be better evaluated when objectives are more precise.
Ex: Chico's, a successful women's fashion retailer, thrives by marketing to women ages 35 to 55 who like to wear comfortable, yet stylish, clothing. It sells private label clothing that comes in just a few nonjudgmental sizes: zero (standard sizes 4 to 6), one (8 to 10), two (10 to 12), and three (14 to 16). Nestlé has modified its portfolio to increase its market share in emerging economies, such as China, India, Malaysia, and Thailand. It sells food goods enriched with vitamins and has seen sales of enhanced milk products increase.
Criteria for Successful Segmentation
Marketers segment markets for three important reasons:
1. First, segmentation enables marketers to identify groups of customers with similar needs and to analyze the characteristics and buying behavior of these groups.
2. Second, segmentation provides marketers with information to help them design marketing mixes specifically matched with the characteristics and desires of one or more segments.
3. Third, segmentation is consistent with the marketing concept of satisfying customer wants and needs while meeting the organization's objectives.
To be useful, a segmentation scheme must produce segments that meet four basic criteria:
1. Substantiality: A segment must be large enough to warrant developing and maintaining a special marketing mix. This criterion does not necessarily mean that a segment must have many potential customers. Marketers of custom-designed homes and business buildings, commercial airplanes, and large computer systems typically develop marketing programs tailored to each potential customer's needs. In most cases, however, a market segment needs many potential customers to make commercial sense. In the 1980s, home banking failed because not enough people owned personal computers. Today, a larger number of people own computers, and home banking is a thriving industry.
2. Identifiability and measurability: Segments must be identifiable and their size measurable. Data about the population within geographic boundaries, the number of people in various age categories, and other social and demographic characteristics are often easy to get, and they provide fairly concrete measures of segment size. Suppose that a social service agency wants to identify segments by their readiness to participate in a drug and alcohol program or in prenatal care. Unless the agency can measure how many people are willing, indifferent, or unwilling to participate, it will have trouble gauging whether there are enough people to justify setting up the service.
3 Accessibility: The firm must be able to reach members of targeted segments with customized marketing mixes. Some market segments are hard to reach—for example, senior citizens (especially those with reading or hearing disabilities), individuals who don't speak English, and the illiterate.
4 Responsiveness: Markets can be segmented using any criteria that seem logical. Unless one market segment responds to a marketing mix differently than other segments, however, that segment need not be treated separately. EX, if all customers are equally price conscious about a product, there is no need to offer high-, medium-, and low-priced versions to different segments.
Marketers use segmentation bases , or variables,which are characteristics of individuals, groups, or organizations, to divide a total market into segments.
The choice of segmentation bases is crucial because an inappropriate segmentation strategy may lead to lost sales and missed profit opportunities.
The key is to identify bases that will produce substantial, measurable, and accessible segments that exhibit different response patterns to marketing mixes.
Markets can be segmented using a single variable, such as age group, or several variables, such as age group, gender, and education.
Although it is less precise, single-variable segmentation has the advantage of being simpler and easier to use than multiple-variable segmentation.
The disadvantagesof multiple-variable segmentation are that it is often harder to use than single-variable segmentation; usable secondary data are less likely to be available; and as the number of segmentation bases increases, the size of individual segments decreases. Nevertheless, the current trend is toward using more rather than fewer variables to segment most markets.
Multiple-variable segmentation is clearly more precise than single-variable segmentation.
Consumer goods marketers commonly use one or more of the following characteristics to segment markets: geography, demographics, psychographics, benefits sought, and usage rate.
Geographic segmentation refers to segmenting markets by region of a country or the world, market size, market density, or climate.
Market density means the number of people within a unit of land, such as a census tract.
Climate is commonly used for geographic segmentation because of its dramatic impact on residents’ needs and purchasing behavior. EX: Snowblowers, water and snow skis, clothing, and air-conditioning and heating systems are products with varying appeal, depending on climate.
Consumer goods companies take a regional approach to marketing for four reasons.
1. First, many firms need to find new ways to generate sales because of sluggish and intensely competitive markets.
2. Second, computerized checkout stations with scanners give retailers an accurate assessment of which brands sell best in their region.
3. Third, many packaged-goods manufacturers are introducing new regional brands intended to appeal to local preferences.
4. Fourth, a more regional approach allows consumer goods companies to react more quickly to competition. For many years, all Macy's stores carried the same merchandise, regardless of location. Now, the chain's “My Macy's” program tailors each store's merchandise mix to reflect local tastes. For example, the stores in Columbus, Ohio, carry more golf clothing than a typical store because of the area's many golf courses. The strategy has paid off for Macy's; total sales increased by almost 5 percent between 2009 and 2010 in spite of the troubled economy during this time.
Marketers often segment markets on the basis of demographic information because it is widely available and often related to consumers’ buying and consuming behavior.
Some common bases of demographic segmentation are age, gender, income, ethnic background, and family life cycle.
1. Age Segmentation Marketers use a variety of terms to refer to different age groups. Examples include newborns, infants, young children, tweens, Generation Y (teens, young adults), Generation X, baby boomers, and seniors. Age segmentation can be an important tool, as a brief exploration of the market potential of several age segments illustrates. Through allowances, earnings, and gifts, children account for and influence a great deal of consumption. EX, young shoppers in the United States spend more than $200 billion of their own money and their parents’ money each year on purchases for themselves and also have considerable influence over major family purchase decisions.
Teens in particular are technology savvy and very social consumers.
Tweens desire to be kids but also want some of the fun of being a teenager. Many retailers serve this market with clothing that is similar in style to that worn by teenagers and young adults.
The members of the Generation Y market, or the millennial generation, were born between 1982 and 2003 and make up almost one-third of the U.S. population. This group not only has formidable purchasing power but is also more civic-minded than the baby boom generation. Seventy-four percent of millennials say they are more likely to pay attention to a company's overall message if the company has a deep commitment to a cause. The teens in this group are interested in apparel that enhances personalization and self-expression because they want their look to reflect their personalities and style. College students (also part of the millennials) all have mobile phones and use them constantly to communicate and connect. Despite the potential marketing gold mine such a connected audience presents, a study showed many people in this group were highly negative toward ads on their phones. This age group engages in its own peer-to-peer marketing through YouTube videos of unboxing or hauls. Unboxing, popular with new technology, is a video or article describing and reviewing new products. Hauls are videos in which the shopper (usually a female) shows off and reviews her purchases from the day. These videos reap millions of views and promote enough sales that some companies send free samples to the haulers for review or offer gift cards for them to shop at their stores.
Generation X is the group that was born after the baby boomers. Members of Generation X tend to be disloyal to brands and skeptical of big business. Many of them are parents, and they make purchasing decisions with thought for and input from their families. Xers desire an experience, not just a product. The desire to have an experience has led to an increase in multifunctional boutiques, particularly in Manhattan's Lower East Side, where the small shops vie for high-end shoppers. The Dressing Room, for example, is a bi-level store with a boutique upstairs, vintage clothing downstairs, and a full bar where customers can hang out.
People born between 1946 and 1964 are often called “baby boomers.” Boomers spend $2.1 trillion a year and represent half of all spending in the United States. For the next 18 years, one baby boomer will turn 60 every seven seconds. Boomers make up 49 percent of affluent households, and they want attention and service when they shop. This group spends big money on goods and services such as travel, electronics, and automobiles. Baby boomers are not particularly brand loyal, and they are a very diverse group. Some are parents to infant children, and others are empty nesters.
Consumers born before 1946 represent people who are part of the war generation (ages 61 to 66), the Great Depression generation (ages 67 to 76), and the G.I. generation (age 77 and up). Many in this group view retirement not as a passive time, but as an active time they use to explore new knowledge, travel, volunteer, and spend time with family and friends. They are living longer and are healthier than older consumers 20 years ago. As consumers age, the do require some shopping modifications. Tesco, a British grocery store chain, is considering designing a store specifically to meet the needs of older shoppers. Music, nonslip floors, extra-wide aisles, brighter than usual lighting, and steps to assist older consumers in reaching high shelves are some the features being examined for inclusion.
In the United States, women make over 70 percent of purchases of consumer goods each year. They are an experienced purchasing group with the responsibility of purchasing the majority of household items. They also are increasingly part of what were once considered all-male markets, such as video games. In 2008, women made 48 percent of all video game purchases. The video game industry has been forced to respond by developing more games with female protagonists and changing its advertising strategy. Design, fashion, and weight-loss games such as Style Savvy or The Biggest Loser are increasingly popular among women.
Marketers of products such as clothing, cosmetics, personal-care items, magazines, jewelry, and gifts still commonly segment markets by gender, and many of these marketers are going after the less-traditional male market. EX, L'Oreal and Procter & Gamble are focusing on the growing market of men's cosmetics with moisturizers, bronzers, hair dye, and shaving accessories. Men's grooming products sales reached $5.6 billion in 2009, up from $3.8 billion in 2004. Even weight-loss programs, which currently have 90 percent female consumption, are starting to target men. Weight Watchers is trying to increase the number of men using its program to lose weight by offering a men-only version of its Web site and mobile applications, which research shows men prefer over the traditional Weight Watchers meetings. Men's programs have higher point totals (reflecting the male tendency to have leaner body mass) and more “cheat sheets” telling them how many points various foods cost.
Income is a popular demographic variable for segmenting markets because income level influences consumers’ wants and determines their buying power.
Many markets are segmented by income, including the markets for housing, clothing, automobiles, and food. Wholesale clubs Costco and Sam's Club appeal to many income segments. Harrison Group researchers found that the favorite stores of affluent households (those that earn more than $100,000 annually) are Costco and Target. High-income customers looking for luxury want outstanding customer service.
EX, fashion companies use computer technology to customize upscale products that are designed specifically for their wealthy customers’ needs. Other companies try to appeal to low-income customers. Walmart plans for more of its stores to offer financial services in “Money Centers” to its lower-income customers who do not have banks. These Money Centers will provide services such as cashing checks, paying bills and filling out tax forms.
In the past, ethnic groups in the United States were expected to conform to a homogenized, Anglo-centric ideal. This was evident both in the marketing of mass-marketed products and in the selective way that films, television, advertisements, and popular music portrayed America's diverse population. Until the 1970s, ethnic foods were rarely sold except in specialty stores. The racial barrier in entertainment lasted nearly as long, except for supporting movie and television roles—often based on stereotypes dating back to the 19th century.
Increasing numbers of ethnic minorities and increased buying power have changed this. Hispanic Americans, African Americans, and Asian Americans are the three largest ethnic groups in the United States. In the American Southwest, Caucasian populations comprise less than half the population and have become the minority to other ethnic groups combined. To meet the needs and wants of expanding ethnic populations, some companies, such as McDonald's and Kmart, make products geared toward a specific group. Kmart has teamed up with Sofia Vergara, a popular Colombian actress, to develop a clothing line to appeal to Hispanics.
Family Life Cycle Segmentation
The demographic factors of gender, age, and income often do not sufficiently explain why consumer buying behavior varies.
Frequently, consumption patterns among people of the same age and gender differ because they are in different stages of the family life cycle.
The family life cycle (FLC) is a series of stagesdetermined by a combination of age, marital status, and the presence or absence of children.The life cycle stage consisting of the married-couple household used to be considered the traditional family in the United States. Today, however, married couples make up less than half of households, down from nearly 80 percent in the 1950s.
Single adults are increasingly in the majority. Already, unmarried Americans make up 42 percent of the workforce, 40 percent of home buyers, and one of the most potent consumer groups on record.
Research has found that the overriding factor in describing baby boomer subsegments is the presence of children in the house.
A Nielsen study discovered eight specific segments: four segments with children younger than 18 represented about 40 percent of the boomers, and four segments without children represented 60 percent. Consumers are especially receptive to marketing efforts at certain points in the life cycle.
Age, gender, income, ethnicity,
FLC stage, and other demographic variables are usually helpful in developing segmentation strategies, but often they don't paint the entire picture.
Demographics provide the skeleton, but psychographics add meat to the bones.
Psychographic segmentation is market segmentation on the basis of the following psychographic segmentation variables:
Personality: Personality reflects a person's traits, attitudes, and habits. Clothing is the ultimate personality descriptor. Fashionistas wear high-end, trendy clothes, and hipsters enjoy jeans and T-shirts with tennis shoes. People buy clothes that they feel represent their personalities and give others an idea of who they are.
Motives: Marketers of baby products and life insurance appeal to consumers’ emotional motives—namely, to care for their loved ones. Using appeals to economy, reliability, and dependability, carmakers like Subaru and Suzuki target customers with rational motives. Carmakers like Mercedes-Benz, Jaguar, and Cadillac appeal to customers with status-related motives.
Lifestyles: Lifestyle segmentation divides people into groups according to the way they spend their time, the importance of the things around them, their beliefs, and socioeconomic characteristics such as income and education. EX, record stores specializing in vinyl are targeting young people who are listening to independent labels and often pride themselves on being independent of big business. LEED-certified appliances appeal to environmentally conscious “green” consumers. PepsiCo is promoting its no-calorie, sugar-free, flavored water, Aquafina Sparkling, to consumers who are health conscious.
Geodemographics: Geodemographic segmentation clusters potential customers into neighborhood lifestyle categories. It combines geographic, demographic, and lifestyle segmentations. Geodemographic segmentation helps marketers develop marketing programs tailored to prospective buyers who live in small geographic regions, such as neighborhoods, or who have very specific lifestyle and demographic characteristics. For example, companies looking to win government manufacturing or technology contracts post cryptic billboards and posters on Washington, D.C. buses and Metro trains, as well as advertising their capabilities on local radio stations. The average commuter doesn't understand the cryptic acronyms, but government decision makers who see or hear the ads understand them and will award federal projects based on the ads—or so companies such as Northrop Grumman hope. Such a campaign could work only in an area where high levels of government decision makers commute regularly. Psychographic variables can be used individually to segment markets or be combined with other variables to provide more detailed descriptions of market segments. One approach is for marketers and advertisers to purchase information from a collector, such as eXelate Media, in order to reach the audience they want. eXelate, part of consumer research firm Nielsen, gathers information about Web-browsing habits through cookies placed on Web sites. Nielsen, using eXelate, organizes groups according to this information.
One group, the “young digerati,” includes 24- to 44-year-olds whoare
live in trendy condos,
read the Economist,
have an annual income of $88,000.
An automaker can purchase that list and the list of people who visit car blogs and then target ads to the “young digerati” interested in cars.
Benefit segmentation is the process of grouping customers into market segments according to the benefits they seek from the product.
Most types of market segmentation are based on the assumption that this variable and customers’ needs are related. Benefit segmentation is different because it groups potential customers on the basis of their needs or wants rather than some other characteristic, such as age or gender. The snack-food market, for example, can be divided into six benefit segments: nutritional snackers, weight watchers, guilty snackers, party snackers, indiscriminate snackers, and economical snackers.Customer profiles can be developed by examining demographic information associated with people seeking certain benefits. This information can be used to match marketing strategies with selected target markets. The many different types of performance energy bars with various combinations of nutrients are aimed at consumers looking for different benefits. For example, PowerBar is designed for athletes looking for long-lasting fuel, while PowerBar Protein Plus is aimed at those who want extra protein for replenishing muscles after strength training. Carb Solutions High Protein Bars are for those on low-carb diets; Luna Bars are targeted to women who want a bar with fewer calories, soy protein, and calcium; and Clif Bars are for people who want a natural bar with ingredients like rolled oats, soybeans, and organic soy flour.
Usage-rate segmentation divides a market by the amount of product bought or consumed.
Categories vary with the product, but they are likely to include some combination of the following:
former users, potential users, first-time users, light or irregular users, medium users, and heavy users. Segmenting by usage rate enables marketers to focus their efforts on heavy users or to develop multiple marketing mixes aimed at different segments. Because heavy users often account for a sizable portion of all product sales, some marketers focus on the heavy-user segment.
The 80/20 principle holds that 20 percent of all customers generate 80 percent of the demand. Although the percentages usually are not exact, the general idea often holds true. For example, in the fast-food industry, the heavy user accounts for only one of five fast-food patrons but makes about 60 percent of all visits to fast-food restaurants. The needs of heavy users differs from the needs of other usage-rate groups. They have intense needs for product and service selection and a variety of types of information, as well as an emotional attachment to the product category. Developing customers into heavy users is the goal behind many frequency/loyalty programs like the airlines’ frequent flyer programs. Many supermarkets and other retailers have also designed loyalty programs that reward the heavy-user segment with deals available only to them, such as in-store coupon dispensing systems, loyalty card programs, and special price deals on selected merchandise.
Bases for Segmenting Business Markets
The business market consists of four broad segments:producers, resellers, government, and institutions.
Whether marketers focus on only one or on all four of these segments, they are likely to find diversity among potential customers. Thus, further market segmentation offers just as many benefits to business marketers as it does to consumer product marketers.
Company characteristics, such as geographic location, type of company, company size, and product use, can be important segmentation variables.
Some markets tend to be regional because buyers prefer to purchase from local suppliers, and distant suppliers may have difficulty competing in terms of price and service. Therefore, firms that sell to geographically concentrated industries benefit by locating close to their markets.
Segmenting by customer type allows business marketers to tailor their marketing mixes to the unique needs of particular types of organizations or industries. For example, Round-Table Companies teamed with SmarterComics to produce 50-page illustrated versions of the most popular business books such as The Long Tail by Chris Anderson and How to Master the Art of Selling by Tom Hopkins. Corey Michael Blake, founder of Round-Table, wanted to make the most-read business books available to time-pressed businesspeople. By condensing and illustrating popular business texts, Blake found a new market for comic books and extended the business book market.
Volume of purchase (heavy, moderate, light) is a commonly used basis for business segmentation.
Another is the buying organization's size, which may affect its purchasing procedures, the types and quantities of products it needs, and its responses to different marketing mixes. Banks frequently offer different services, lines of credit, and overall attention to commercial customers based on their size. Many products, especially raw materials like steel, wood, and petroleum, have diverse applications. How customers use a product may influence the amount they buy, their buying criteria, and their selection of vendors. For example, a producer of springs may have customers who use the product in applications as diverse as making machine tools, bicycles, surgical devices, office equipment, telephones, and missile systems.
Many business marketers find it helpful to segment customers and prospective customers on the basis of how they buy.
For example, companies can segment some business markets by ranking key purchasing criteria, such as price, quality, technical support, and service. Atlas Corporation has developed a commanding position in the industrial door market by providing customized products in just 4 weeks, which is much faster than the industry average of 12 to 15 weeks. Atlas's primary market is companies with an immediate need for customized doors.The purchasing strategies of buyers may provide useful segments.
Two purchasing profiles that have been identified are satisficers and optimizers.
1. Satisficers contact familiar suppliers and place the order with the first one to satisfy product and delivery requirements.
2. Optimizers consider numerous suppliers (both familiar and unfamiliar), solicit bids, and study all proposals carefully before selecting one.
The personal characteristics of the buyers themselves (their demographic characteristics, decision style, tolerance for risk, confidence level, job responsibilities, and so on) influence their buying behavior and thus offer a viable basis for segmenting some business markets. IBM computer buyers, for example, are sometimes characterized as being more risk averse than buyers of less expensive computers that perform essentially the same functions. In advertising, therefore, IBM stresses its reputation for high quality and reliability.
Steps in Segmenting a Market
The purpose of market segmentation, in both consumer and business markets, is to identify marketing opportunities.
1 Select a market or product category for study: Define the overall market or product category to be studied. It may be a market in which the firm already competes, a new but related market or product category, or a totally new market.
2 Choose a basis or bases for segmenting the market: This step requires managerial insight, creativity, and market knowledge. There are no scientific procedures for selecting segmentation variables. However, a successful segmentation scheme must produce segments that meet the four basic criteria discussed earlier in this chapter.
3 Select segmentation descriptors: After choosing one or more bases, the marketer must select the segmentation descriptors. Descriptors identify the specific segmentation variables to use. For example, if a company selects demographics as a basis of segmentation, it may use age, occupation, and income as descriptors. A company that selects usage segmentation needs to decide whether to go after heavy users, nonusers, or light users.
4 Profile and analyze segments: The profile should include the segments’ size, expected growth, purchase frequency, current brand usage, brand loyalty, and long-term sales and profit potential. This information can then be used to rank potential market segments by profit opportunity, risk, consistency with organizational mission and objectives, and other factors important to the firm.
5 Select target markets: Selecting target markets is not a part of but a natural outcome of the segmentation process. It is a major decision that influences and often directly determines the firm's marketing mix. This topic is examined in greater detail later in this chapter.
6 Design, implement, and maintain appropriate marketing mixes: The marketing mix has been described as product, place (distribution), promotion, and pricing strategies intended to bring about mutually satisfying exchange relationships with target markets. These topics are explored in detail in Chapters 10 through 20.Markets are dynamic, so it is important that companies proactively monitor their segmentation strategies over time. Often, once customers or prospects have been assigned to a segment, marketers think their task is done. Once customers are assigned to an age segment, for example, they stay there until they reach the next age bracket or category, which could be ten years in the future. Thus, the segmentation classifications are static, but the customers and prospects are changing. Dynamic segmentation approaches adjust to fit the changes that occur in customers’ lives. BCBG uses BCBGeneration to target a younger crowd, and Aéropostale owns P.S., which sells clothing for children ages 7 to 12. However, some segments have too many players, and choosing to enter those kinds of segments can be particularly challenging. High-end denim has so many boutiques and brands that customers are tired of the volume.
7 Strategies for Selecting Target Markets
So far, this chapter has focused on the market segmentation process, which is only the first step in deciding whom to approach about buying a product. The next task is to choose one or more target markets. A target market is a group of people or organizations for which an organization designs, implements, and maintains a marketing mix intended to meet the needs of that group, resulting in mutually satisfying exchanges. Because most markets will include customers with different characteristics, lifestyles, backgrounds, and income levels, it is unlikely that a single marketing mix will attract all segments of the market. Thus, if a marketer wishes to appeal to more than one segment of the market, it must develop different marketing mixes. For example, Subaru's customer base consists of eco-conscious individuals who value freedom and buy experiences, not things. To attract younger, sportier consumers with similar values, Subaru is developing a small car, as well as a hybrid.27 The three general strategies for selecting target markets—undifferentiated, concentrated, and multi-segment targeting—are illustrated on the next page in Exhibit 8.2, which also illustrates the advantages and disadvantages of each targeting strategy.
Undifferentiated Targeting Advantages: Potential savings on production/marketing costs Disadvantages: Unimaginative product offeringsCompany more susceptible to competition
A firm using an undifferentiated targeting strategy essentially adopts a mass-market philosophy, viewing the market as one big market with no individual segments. The firm uses one marketing mix for the entire market. A firm that adopts an undifferentiated targeting strategy assumes that individual customers have similar needs that can be met with a common marketing mix.The first firm in an industry sometimes uses an undifferentiated targeting strategy. With no competition, the firm may not need to tailor marketing mixes to the preferences of market segments. Henry Ford's famous comment about the Model T is a classic example of an undifferentiated targeting strategy: “They can have their car in any color they want, as long as it's black.” At one time, Coca-Cola used this strategy with a single product and a single size of its familiar green bottle. Marketers of commodity products, such as flour and sugar, are also likely to use an undifferentiated targeting strategy.One advantage of undifferentiated marketing is the potential for saving on production and marketing. Because only one item is produced, the firm should be able to achieve economies of mass production. Also, marketing costs may be lower when there is only one product to promote and a single channel of distribution. Too often, however, an undifferentiated strategy emerges by default rather than by design, reflecting a failure to consider the advantages of a segmented approach. The result is often sterile, unimaginative product offerings that have little appeal to anyone.Another problem associated with undifferentiated targeting is that it makes the company more susceptible to competitive inroads. Hershey lost a big share of the candy market to Mars and other candy companies before it changed to a multisegment targeting strategy. Coca-Cola forfeited its position as the leading seller of cola drinks in supermarkets to PepsiCo in the late 1950s, when Pepsi began offering several sizes of containers.You might think a firm producing a standard product such as toilet tissue would adopt an undifferentiated strategy. However, this market has industrial segments and consumer segments. Industrial buyers want an economical, single-ply product sold in boxes of a hundred rolls. The consumer market demands a more versatile product in smaller quantities. Within the consumer market, the product is differentiated with designer print or no print, cushioned or non-cushioned, and economy priced or luxury priced. Fort Howard Corporation, the market share leader in industrial toilet paper, does not even sell to the consumer market.Undifferentiated marketing can succeed in certain situations, though. A small grocery store in a small, isolated town may define all of the people who live in the town as its target market. It may offer one marketing mix and generally satisfy everyone in town. This strategy is not likely to be as effective if there are three or four grocery stores in town.
Concentrated Targeting Advantages: Concentration of resources, Can better meet the needs of a narrowly defined segment, Allows some small firms to better compete with larger firms, Strong positioning Disadvantages: Segments too small or changing, Large competitors may more effectively market to niche segment
With a concentrated targeting strategy , a firm selects a market niche (one segment of a market) for targeting its marketing efforts. Because the firm is appealing to a single segment, it can concentrate on understanding the needs, motives, and satisfactions of that segment's members and on developing and maintaining a highly specialized marketing mix. Some firms find that concentrating resources and meeting the needs of a narrowly defined market segment is more profitable than spreading resources over several different segments.Intelligentsia, a Chicago-based coffee roaster/retailer, targets serious coffee drinkers with hand-roasted, ground, and poured super-gourmet coffee or tea served by seriously educated baristas. The company also offers training classes for the at-home or out-of-town coffee aficionado. Starting price—$200 per class. America Online became one of the world's leading Internet providers by targeting Internet newcomers.Small firms often adopt a concentrated targeting strategy to compete effectively with much larger firms. For example, Enterprise Rent-A-Car rose to number one in the car rental industry by catering to people with cars in the shop. It then expanded into the airport rental market. Some other firms use a concentrated strategy to establish a strong position in a desirable market segment. Porsche, for instance, targets an upscale automobile market through “class appeal, not mass appeal.”Concentrated targeting violates the old adage “Don't put all your eggs in one basket.” If the chosen segment is too small or if it shrinks because of environmental changes, the firm may suffer negative consequences. For instance, OshKosh B'gosh was highly successful selling children's wear in the 1980s. It was so successful, however, that the children's line came to define OshKosh's image to the extent that the company could not sell clothes to anyone else. Attempts at marketing older children's clothing, women's casual clothes, and maternity wear were all abandoned. Recognizing it was in the children's wear business, the company expanded into products such as kids’ shoes, children's eyewear, and plush toys.A concentrated strategy can also be disastrous for a firm that is not successful in its narrowly defined target market. Before Procter & Gamble introduced Head & Shoulders shampoo, several small firms were already selling antidandruff shampoos. Head & Shoulders was introduced with a large promotional campaign, and the new brand captured over half the market immediately. Within a year, several of the firms that had been concentrating on this market segment went out of business.
Multisegment Targeting Advantages: Greater financial success, Economies of scale in producing/marketing Disadvantages: High costs, Cannibalization
A firm that chooses to serve two or more well-defined market segments and develops a distinct marketing mix for each has a multisegment targeting strategy . Walmart has historically followed a concentrated strategy that targeted lower-income segments. Recently, however, the company has segmented its customers into three core groups based on the type of value they seek at the stores. “Brand Aspirationals” are low-income customers who like to buy brand names such as KitchenAid, “Price-Sensitive Affluents” are wealthier shoppers who love deals, and “Value-Price Shoppers” like low prices and can't afford much more.28 Multisegment targeting offers many potential benefits to firms, including greater sales volume, higher profits, larger market share, and economies of scale in manufacturing and marketing. Yet it may also involve greater product design, production, promotion, inventory, marketing research, and management costs. Before deciding to use this strategy, firms should compare the benefits and costs of multisegment targeting to those of undifferentiated and concentrated targeting.Another potential cost of multisegment targeting is cannibalization , which occurs when sales of a new product cut into sales of a firm's existing products. For example, Apple's iPhone and iPad may be causing sales of the iPod to drop, and there is some fear that the iPad will take away Mac sales, Apple's cash cow. The only evidence of those fears being realized is the 17 percent drop in sales of iPods since the release of the iPad.29 In many cases, however, companies prefer to steal sales from their own brands rather than lose sales to a competitor. Also, in today's fast-paced world of Internet business, some companies are willing to cannibalize existing business to build new business.
Most businesses today use a mass-marketing approach designed to increase market share by selling their products to the greatest number of people. For many businesses, however, it is more efficient and profitable to use one-to-one marketing to increase share of customer—in other words, to sell more products to each customer. One-to-one marketing is an individualized marketing method that utilizes customer information to build long-term, personalized, and profitable relationships with each customer. The goal is to reduce costs through customer retention and increase revenue through customer loyalty.The difference between one-to-one marketing and the traditional mass-marketing approach can be compared to the difference between a rifle and a shotgun. If you have good aim, a rifle is the more efficient weapon to use. A shotgun, on the other hand, increases your odds of hitting the target when it is more difficult to focus. Instead of scattering messages far and wide across the spectrum of mass media (the shotgun approach), one-to-one marketers look for opportunities to communicate with each individual customer (the rifle approach).A Dog's Life, a California company that makes organic pet treats, holds a monthly competition in which users upload photos of their pets and vote on their favorites. The winning photo is featured for a month on bags of the dog treats. Customers can also pay $3 to $4 for customized treats, which include a photo of their choice on the package. Winners of the contest buy several bags, and the contests keep the brand in the social media news circuit.30 Customers who customize have been found to be more loyal. Several factors suggest that personalized communications and product customization will continue to expand as more companies understand why and how their customers make and execute purchase decisions. At least four trends will lead to the continuing growth of one-to-one marketing: personalization, time savings, loyalty, and technology.Personalization: One-size-fits-all marketing is no longer relevant. Consumers want to be treated as the individuals they are, with their own unique sets of needs and wants. By its personalized nature, one-to-one marketing can fulfill this desire.Time savings: Direct and personal marketing efforts will continue to grow to meet the needs of consumers who no longer have the time to spend shopping and making purchase decisions. With the personal and targeted nature of one-to-one marketing, consumers can spend less time making purchase decisions and more time doing the things that are important.Loyalty: Consumers will be loyal only to those companies and brands that have earned their loyalty and reinforced it at every purchase occasion. One-to-one marketing techniques focus on finding a firm's best customers, rewarding them for their loyalty, and thanking them for their business.Technology: Mass-media approaches will decline in importance as advances in market research and database technology allow marketers to collect detailed information on their customers. New technology offers one-to-one marketers a more cost-effective way to reach customers and enables businesses to personalize their messages. For example, MyYahoo.com greets each user by name and offers information in which the user has expressed interest. Similarly, RedEnvelope.com helps customers keep track of special occasions and offers personalized gift recommendations. With the help of database technology, one-to-one marketers can track their customers as individuals, even if they number in the millions.One-to-one marketing is a huge commitment and often requires a 180-degree turnaround for marketers who spent the last half of the 20th century developing and implementing mass-marketing efforts. Although mass marketing will probably continue to be used, especially to create brand awareness or to remind consumers of a product, the advantages of one-to-one marketing cannot be ignored.
The development of any marketing mix depends on positioning , a process that influences potential customers’ overall perception of a brand, product line, or organization in general. Position is the place a product, brand, or group of products occupies in consumers’ minds relative to competing offerings. Consumer goods marketers are particularly concerned with positioning. Procter & Gamble, for example, markets 11 different laundry detergents, each with a unique position, such as allergen-free, softening, or ultra-concentrated.Positioning assumes that consumers compare products on the basis of important features. Marketing efforts that emphasize irrelevant features are therefore likely to misfire. For example, Crystal Pepsi and a clear version of Coca-Cola's Tab failed because consumers perceived the “clear” positioning as more of a marketing gimmick than a benefit.Effective positioning requires assessing the positions occupied by competing products, determining the important dimensions underlying these positions, and choosing a position in the market where the organization's marketing efforts will have the greatest impact. SuperJam positions itself as superior to other jams because it is 100 percent fruit, has no sugar added, and is made with super fruits such as blueberries and cranberries, which boast added health benefits. The recipe also comes from the creator's grandmother, adding a homespun element that separates it from other jams.31 As the previous example illustrates, product differentiation is a positioning strategy that many firms use to distinguish their products from those of competitors. The distinctions can be either real or perceived. Tandem Computer designed machines with two central processing units and two memories for users who cannot afford for their computer systems to be down or databases to be lost (e.g., an airline reservation system). In this case, Tandem used product differentiation to create a product with very real advantages for the target market. However, many everyday products, such as bleaches, aspirin, unleaded regular gasoline, and some soaps, are differentiated by such trivial means as brand names, packaging, color, smell, or “secret” additives. The marketer attempts to convince consumers that a particular brand is distinctive and that they should demand it over competing brands.Some firms, instead of using product differentiation, position their products as being similar to competing products or brands. Two examples of this positioning are artificial sweeteners advertised as tasting like sugar and margarine tasting like butter.
Perceptual mapping is a means of displaying or graphing, in two or more dimensions, the location of products, brands, or groups of products in customers’ minds. For example, Saks Incorporated, the department store chain, stumbled in sales when it tried to attract a younger core customer. To recover, Saks invested in research to determine its core customers in its 54 stores across the country. The perceptual map in Exhibit 8.3 on the next page shows how Saks uses customer demographics, such as age, spending habits, and shopping patterns, to build a matrix that charts the best mix of clothes and accessories to stock in each store.
Firms use a variety of bases for positioning, including the following:Attribute: A product is associated with an attribute, product feature, or customer benefit. In engineering its products, Seventh Generation focuses on removing common toxins and chemicals from household products to make them safe for everyone in the household.Price and quality: This positioning base may stress high price as a signal of quality or emphasize low price as an indication of value. Neiman Marcus uses the high-price strategy; Walmart has successfully followed the low-price and value strategy. The mass merchandiser Target has developed an interesting position based on price and quality. It is an “upscale discounter,” sticking to low prices but offering higher quality and design than most discount chains.Use or application: Stressing uses or applications can be an effective means of positioning a product with buyers. Danone introduced its Kahlúa liqueur using advertising to point out 228 ways to consume the product. Snapple introduced a new drink called “Snapple a Day” that is intended for use as a meal replacement.Product user: This positioning base focuses on a personality or type of user. Gap Inc. has several different brands: Gap stores offer basic casual pieces, such as jeans and T-shirts to middle-of-the-road consumers at mid-level prices; Old Navy offers low-priced, trendy casual wear geared to youth and college-age groups; and Banana Republic is a luxury brand offering fashionable, luxurious business and casual wear to 25- to 35-year-olds.32 Product class: The objective here is to position the product as being associated with a particular category of products—for example, positioning a margarine brand with butter. Alternatively, products can be disassociated with a category.Competitor: Positioning against competitors is part of any positioning strategy. Avis Rent A Car's positioning as number two compared to Hertz exemplifies positioning against specific competitors.Emotion: Positioning using emotion focuses on how the product makes customers feel. A number of companies use this approach. For example, Nike's “Just Do It” campaign didn't tell consumers what “it” is, but most got the emotional message of achievement and courage. The creators of iPhone game Bumpy Road not only created a new way to play a game (by manipulating the world around a car, rather than manipulating the car), but they relied on a simple story about a precious little couple to differentiate Bumpy Road from other games.
Sometimes products or companies are repositioned in order to sustain growth in slow markets or to correct positioning mistakes. Repositioning is changing consumers’ perceptions of a brand in relation to competing brands. Post Foods, in an effort to revive its Grape Nuts cereal, repositioned it from a cereal for families and women to a cereal for men. Advertising in Sports Illustrated magazine featured men doing “tough things” such as walking a poodle with a pink collar and setting up a VCR followed by the new slogan “That Takes Grape Nuts.”
Marketing Decision Support Systems
(DSS) Marketing decision support system
Characteristics: Interactive, Flexible, Discovery oriented.
Accurate and timely information is the lifeblood of marketing decision making. Good information can help an organization maximize sales and efficiently use scarce company resources. To prepare and adjust marketing plans, managers need a system for gathering everyday information about developments in the marketing environment—that is, for gathering marketing information . The system most commonly used these days for gathering marketing information is called a marketing decision support system.
A marketing decision support system (DSS) is an interactive, flexible, computerized information system that enables managers to obtain and manipulate information as they are making decisions. A DSS bypasses the information-processing specialist and gives managers access to useful data from their own desks.
These are the characteristics of a true DSS:
Interactive: Managers give simple instructions and see immediate results. The process is under their direct control. Managers don't have to wait for scheduled reports.
Flexible: A DSS can sort, regroup, total, average, and manipulate the data in various ways. It will shift gears as the user changes topics, matching information to the problem at hand.
Discovery oriented: Managers can probe for trends, isolate problems, and ask “what if” questions.Accessible: Managers who aren't skilled with computers can easily learn how to use a DSS. Novice users should be able to choose a standard, or default, method of using the system. They can bypass optional features so they can work with the basic system right away while gradually learning to apply its advanced features.Perhaps the fastest-growing use of a DSS is for database marketing , which is the creation of a large computerized file of customers’ and potential customers’ profiles and purchase patterns. It is usually the key tool for successful one-to-one marketing, which relies on very specific information about a market.
The Role of Marketing Research
1. Identify and formulate the problem/oppurtunity
2. Plan the research design and gather secondary data
3. specify the sampling procedures
4. Collect primary data
5. Analyze the data
6. prepare and present the report
7. Follow up
Marketing research is the process of planning, collecting, and analyzing data relevant to a marketing decision. The results of this analysis are then communicated to management. Thus, marketing research is the function that links the consumer, customer, and public to the marketer through information. Marketing research plays a key role in the marketing system. It provides decision makers with data on the effectiveness of the current marketing mix and insights for necessary changes. Furthermore, marketing research is a main data source for both management information systems and DSS. In other words, the findings of a marketing research project become data in a DSS.Marketing research has three roles: descriptive, diagnostic, and predictive. Its descriptive role includes gathering and presenting factual statements. For example, what is the historic sales trend in the industry? What are consumers’ attitudes toward a product and its advertising? Its diagnostic role includes explaining data, such as determining the impact on sales of a change in the design of the package. Its predictive function is to address “what if” questions. For example, how can the researcher use the descriptive and diagnostic research to predict the results of a planned marketing decision?
Steps in a Marketing Research Project
Virtually all firms that have adopted the marketing concept engage in some marketing research because it offers decision makers many benefits. Some companies spend millions on marketing research; others, particularly smaller firms, conduct informal, limited-scale research studies.Whether a research project costs $200 or $2 million, the same general process should be followed. The marketing research process is a scientific approach to decision making that maximizes the chance of getting accurate and meaningful results. Exhibit 9.1 traces the seven steps in the research process, which begins with the recognition of a marketing problem or opportunity. As changes occur in the firm's external environment, marketing managers are faced with the questions, “Should we change the existing marketing mix?” and, if so, “How?” Marketing research may be used to evaluate product, promotion, distribution, or pricing alternatives.After years of research, Procter & Gamble relaunched its ubiquitous hair care line Pantene in 2010. In 2009, Pantene's U.S. sales dropped 9 percent, more than the 3 percent decline for the shampoo market as a whole. P&G had already been working on ways to differentiate Pantene from other hair care lines but needed a specific place to focus its research.Pantene researchers delved into women's reactions to “bad hair days,” a challenging, subjective area that is lightly touched on by only a few other hair care companies. But P&G faced the problem head on, surveying women about their feelings when using certain hair products. The ultimate goal for Pantene was to help women have “good hair days.” After one week using Pantene products, women using the new formula reported more joy than the control group. The company is still collecting sales figures, but with brighter packaging and slimmer product lines to ease consumer confusion, managers remain optimistic that their hallmark line will bounce back from the recession stronger than before.1 The Pantene story illustrates an important point about problem/opportunity definition. The marketing research problem is information oriented. It involves determining what information is needed and how that information can be obtained efficiently and effectively. The marketing research objective , then, is to provide insightful decision-making information. This requires specific pieces of information needed to solve the marketing research problem. Managers must combine this information with their own experience and other information to make proper decisions. Procter & Gamble's marketing research problem was to gather specific information about how a woman's hair affects her feelings and mood. The marketing research objectives were to reformulate Pantene to affect women's hair more positively and reposition the brand as an antidote to bad hair days.In contrast, the management decision problem is action oriented. Management problems tend to be much broader in scope and far more general than marketing research problems, which must be narrowly defined and specific if the research effort is to be successful. Sometimes several research studies must be conducted to solve a broad management problem. For Pantene, the management decision problem was deciding how to win women back after the recession.
A valuable tool throughout the research process but particularly in the problem/opportunity identification stage is secondary data —data previously collected for any purpose other than the one at hand. Secondary information originating within the company includes documents such as annual reports, reports to stockholders, product testing results perhaps made available to the news media, and house periodicals composed by the company's personnel for communication to employees, customers, or others. Often this information is incorporated into a company's internal database.Innumerable outside sources of secondary information also exist, principally in the forms of government departments and agencies (federal, state, and local) that compile and publish summaries of business data. Trade and industry associations also publish secondary data. Still more data are available in business periodicals and other news media that regularly publish studies and articles on the economy, specific industries, and even individual companies. The unpublished summarized secondary information from these sources corresponds to internal reports, memos, or special-purpose analyses with limited circulation. Economic considerations or priorities in the organization may preclude publication of these summaries. Most of the sources listed above can be found on the Internet.Secondary data save time and money if they help solve the researcher's problem. Even if the problem is not solved, secondary data have other advantages. They can aid in formulating the problem statement and suggest research methods and other types of data needed for solving the problem. In addition, secondary data can pinpoint the kinds of people to approach and their locations and serve as a basis of comparison for other data. The disadvantages of secondary data stem mainly from a mismatch between the researcher's unique problem and the purpose for which the secondary data were originally gathered, which are typically different. For example, a company wanted to determine the market potential for a fireplace log made of coal rather than compressed wood by-products. The researcher found plenty of secondary data about total wood consumed as fuel, quantities consumed in each state, and types of wood burned. Secondary data were also available about consumer attitudes and purchase patterns of wood by-product fireplace logs. The wealth of secondary data provided the researcher with many insights into the artificial log market. Yet nowhere was there any information that would tell the firm whether consumers would buy artificial logs made of coal.The quality of secondary data may also pose a problem. Often secondary data sources do not give detailed information that would enable a researcher to assess their quality or relevance. Whenever possible, a researcher needs to address these important questions: Who gathered the data? Why were the data obtained? What methodology was used? How were classifications (such as heavy users versus light users) developed and defined? When was the information gathered?
The New Age of Secondary Information: The Internet
Although necessary in almost any research project, gathering secondary data has traditionally been a tedious and boring job. The researcher often had to write to government agencies, trade associations, or other secondary data providers and then wait days or weeks for a reply that might never come. Often, one or more trips to the library were required and the researcher might have found that needed reports were checked out or missing. Now, however, the rapid development of the Internet has eliminated much of the drudgery associated with the collection of secondary data.
Marketing Research Aggregators
The marketing research aggregator industry is a $120 million business that is growing about 6 percent a year. Companies in this field acquire, catalog, reformat, segment, and resell reports already published by large and small marketing research firms. Even Amazon.com has added a marketing research aggregation area to its high-profile e-commerce site.The role of aggregator firms is growing because their databases of research reports are getting bigger and more comprehensive—and more useful—as marketing research firms get more comfortable using resellers as a sales channel. Meanwhile, advances in Web technology are making the databases easier to search and deliveries speedier. By slicing and repackaging research reports into narrower, more specialized sections for resale to small- and medium-sized clients who often cannot afford to commission their own studies or buy full reports, the aggregators are essentially nurturing a new target market for the information. Some major aggregators are mindbranch.com , aarkstore.com , and usadata.com .
Planning the Research Design and Gathering Primary Data
Good secondary data can help researchers conduct a thorough situation analysis. With that information, researchers can list their unanswered questions and rank them. Researchers must then decide the exact information required to answer the questions. The research design specifies which research questions must be answered, how and when the data will be gathered, and how the data will be analyzed. Typically, the project budget is finalized after the research design has been approved.Sometimes research questions can be answered by gathering more secondary data; otherwise, primary data may be needed. Primary data , or information collected for the first time, are used for solving the particular problem under investigation. The main advantage of primary data is that they will answer a specific research question that secondary data cannot answer. In Procter & Gamble's research for Pantene, managers used a psychological questionnaire to determine how hair products affected women's daily attitudes. For one week, one group of women used the old Pantene formula, and the other group used the new formula. This primary data revealed that women using the new Pantene felt more excited, proud, interested, and attentive than the other group—positive emotions that the Pantene research group could not have discovered through secondary research.2 Moreover, primary data are current, and researchers know the source. Sometimes researchers gather the data themselves rather than assign projects to outside companies. Researchers also specify the methodology of the research. Secrecy can be maintained because the information is proprietary. In contrast, much secondary data is available to all interested parties for relatively small fees or free.Gathering primary data is expensive; costs can range from a few thousand dollars for a limited survey to several million for a nationwide study. For instance, a nationwide, 15-minute telephone interview with 1,000 adult males can cost $50,000 for everything, including a data analysis and report. Because primary data gathering is so expensive, firms may cut back on the number of in-person interviews to save money and use an Internet study instead. Larger companies that conduct many research projects use another cost-saving technique. They piggyback studies, or gather data on two different projects using one questionnaire. Nevertheless, the disadvantages of primary data gathering are usually offset by the advantages. It is often the only way of solving a research problem. And with a variety of techniques available for research—including surveys, observations, and experiments—primary research can address almost any marketing question.
The most popular technique for gathering primary data is survey research , in which a researcher interacts with people to obtain facts, opinions, and attitudes. Exhibit 9.2 summarizes the characteristics of traditional forms of survey research.
In-Home Personal Interviews
Although in-home personal interviews often provide high-quality information, they tend to be very expensive because of the interviewers’ travel time and mileage costs. Therefore, they are rapidly disappearing from the American and European researchers’ survey toolbox. They are, however, still popular in many countries around the globe.
Mall Intercept Interviews
The mall intercept interview is conducted in the common area of a shopping mall or in a market research office within the mall. To conduct this type of interview, the research firm rents office space in the mall or pays a significant daily fee. One drawback is that it is hard to get a representative sample of the population. One advantage is the ability of the interviewer to probe when necessary—a technique used to clarify a person's response and ask for more detailed information.Mall intercept interviews must be brief. Only the shortest ones are conducted while respondents are standing. Usually, researchers invite respondents into the office for interviews, which are still generally less than 15 minutes long. The overall quality of mall intercept interviews is about the same as telephone interviews.Marketing researchers are applying computer technology in mall interviewing. The first technique is computer-assisted personal interviewing . The researcher conducts in-person interviews, reads questions to the respondent off a computer screen, and directly keys the respondent's answers into the computer. A second approach is computer-assisted self-interviewing . A mall interviewer intercepts and directs willing respondents to nearby computers. Each respondent reads questions off a computer screen and directly keys his or her answers into a computer. The third use of technology is fully automated self-interviewing. Respondents are guided by interviewers or independently approach a centrally located computer station or kiosk, read questions off a screen, and directly key their answers into the station's computer.
Telephone interviews costs less than personal interviews, but cost is rapidly increasing due to respondent refusals to participate. Most telephone interviewing is conducted from a specially designed phone room called a central-location telephone (CLT) facility . A CLT facility has many phone lines, individual interviewing stations, headsets, and sometimes monitoring equipment. The research firm typically will interview people nationwide from a single location. The federal “Do Not Call” law does not apply to survey research.Most CLT facilities offer computer-assisted interviewing. The interviewer reads the questions from a computer screen and enters the respondent's data directly into the computer, saving time. Hallmark Cards found that an interviewer administered a printed questionnaire for its Shoebox greeting cards in 28 minutes. The same questionnaire administered with computer assistance took only 18 minutes. The researcher can stop the survey at any point and immediately print out the survey results, allowing the research design to be refined as necessary.
Mail surveys have several benefits: relatively low cost, elimination of interviewers and field supervisors, centralized control, and actual or promised anonymity for respondents (which may draw more candid responses). A disadvantage is that mail questionnaires usually produce low response rates because certain elements of the population tend to respond more than others. The resulting sample may therefore not represent the surveyed population. Another serious problem with mail surveys is that no one probes respondents to clarify or elaborate on their answers.Mail panels offer an alternative to the one-shot mail survey. A mail panel consists of a sample of households recruited to participate by mail for a given period. Panel members often receive gifts in return for their participation. Essentially, the panel is a sample used several times. In contrast to one-time mail surveys, the response rates from mail panels are high. Rates of 70 percent (of those who agree to participate) are not uncommon.
An executive interview involves interviewing businesspeople at their offices concerning industrial products or services, a process that is very expensive. First, individuals involved in the purchase decision for the product in question must be identified and located, which can itself be expensive and time-consuming. Once a qualified person is located, the next step is to get that person to agree to be interviewed and to set a time for the interview.Finally, an interviewer must go to the particular place at the appointed time. Long waits are frequently encountered; cancellations are not uncommon. This type of survey requires the very best interviewers because they are frequently interviewing on topics that they know very little about.
A focus group is a type of personal interviewing. Often recruited by random telephone screening, seven to ten people with certain desired characteristics form a focus group. These qualified consumers are usually offered an incentive (typically $30 to $50) to participate in a group discussion. The meeting place (sometimes resembling a living room, sometimes featuring a conference table) has audiotaping and perhaps videotaping equipment. It also likely has a viewing room with a one-way mirror so that clients (manufacturers or retailers) can watch the session. During the session, a moderator, hired by the research company, leads the group discussion. Focus groups can be used to gauge consumer response to a product or promotion and are occasionally used to brainstorm new product ideas or to screen concepts for new products. Focus groups also represent an efficient way of learning how products are actually used in the home. Panelists’ descriptions of how they perform tasks highlight need gaps, which can improve an existing product or demonstrate how a new product might be received. It is estimated that over 600,000 focus groups are conducted around the world each year.
All forms of survey research require a questionnaire. Questionnaires ensure that all respondents will be asked the same series of questions. Questionnaires include three basic types of questions: open-ended, closed-ended, and scaled-response.
An open-ended question encourages an answer phrased in the respondent's own words. Researchers get a rich array of information based on the respondent's frame of reference (What do you think about the new flavor?). In contrast, a closed-ended question asks the respondent to make a selection from a limited list of responses. Closed-ended questions can either be what marketing researchers call dichotomous (Do you like the new flavor? Yes or No.) or multiple choice.
A scaled-response question is a closed-ended question designed to measure the intensity of a respondent's answer. The “What do you think?” question that opened the chapter is a scaled-response question.Closed-ended and scaled-response questions are easier to tabulate than open-ended questions because response choices are fixed. On the other hand, unless the researcher designs the closed-ended question very carefully, an important choice may be omitted.A good question must be clear and concise and avoid ambiguous language. The answer to the question “Do you live within ten minutes of here?” depends on the mode of transportation (maybe the person walks), driving speed, perceived time, and other factors. Language should also be clear. As such, jargon should be avoided, and wording should be geared to the target audience. A question such as “What is the level of efficacy of your preponderant dishwasher powder?” would probably be greeted by a lot of blank stares. It would be much simpler to say “Are you (1) very satisfied, (2) somewhat satisfied, or (3) not satisfied with your current brand of dishwasher powder?”Stating the survey's purpose at the beginning of the interview may improve clarity, but it may also increase the chances of receiving biased responses. Many times, respondents will try to provide answers that they believe are “correct” or that the interviewer wants to hear. To avoid bias at the question level, researchers should avoid leading questions and adjectives that cause respondents to think of the topic in a certain way.Finally, to ensure clarity, the interviewer should avoid asking two questions in one—for example, “How did you like the taste and texture of the Pepperidge Farm coffee cake?” This should be divided into two questions, one concerning taste and the other texture.
In contrast to survey research, observation research depends on watching what people do. Specifically, it can be defined as the systematic process of recording the behavioral patterns of people, objects, and occurrences without questioning them. A market researcher using the observation technique witnesses and records information as events occur or compiles evidence from records of past events. Carried a step further, observation may involve watching people or phenomena and may be conducted by human observers or machines. Examples of these various observational situations are shown in Exhibit 9.3.Two common forms of people-watching-people research are one-way mirror observations and mystery shoppers. A one-way mirror allows the researchers to see the participants, but the participants cannot see the researchers.
Mystery shoppers are researchers posing as customers who gather observational data about a store (e.g., are the shelves neatly stocked?) and collect data about customer/employee interactions. The interaction is not an interview, and communication occurs only so that the mystery shopper can observe the actions and comments of the employee. Mystery shopping is, therefore, classified as an observational marketing research method even though communication is often involved.
Behavioral targeting (BT) began as a simple process by placing cookies on users’ browsers to track which Web sites they visited and ultimately match the user with ads they would most likely investigate. Today, BT combines a consumer's online activity with psychographic and demographic profiles compiled in databases (discussed in Chapters 4 and 8). Because of the potential effectiveness of BT advertising, its popularity is skyrocketing. Social networking, which is discussed in depth in Chapter 22, is the fastest-growing area of BT. The information that a member of Google+ or Facebook shares, in combination with his or her demographic and psychographic information, becomes a very powerful tool for ad placement. Critics call this form of BT conversational eavesdropping analysis, but advocates call it user-declared information targeting.5 It is an apt description because the information is posted by members in their profiles. Say Alex posts kayaking as an interest on his profile. Because he declared his interest, it is more concrete marketing knowledge. A note that someone from that computer's address visited a kayaking Web site is less concrete because anyone could have been using that computer. Both Facebook and MySpace allow marketers to target ads to members based upon profile information. Many large companies use BT. When PepsiCo wanted to promote Aquafina Alive on the Web, the company placed ads only on sites visited by people interested in healthy lifestyles.
Ethnographic research comes to marketing from the field of anthropology. The technique is becoming increasingly popular in commercial marketing research. Ethnographic research , or the study of human behavior in its natural context, involves observation of behavior and physical setting. Ethnographers directly observe the population they are studying. As “participant observers,” ethnographers can use their intimacy with the people they are studying to gain richer, deeper insights into culture and behavior—in short, what makes people do what they do.The at-home consumption market is one that eludes much research. Anthropologists and other observational researchers can't sit in people's homes and monitor which electronic devices they are using and how they use them. Questionnaires rely on onetime truthful responses and the respondent's memory. However, some of the nation's biggest media companies are hoping to get a look into people's homes by using iPhones to monitor media consumption. The Coalition for Innovative Media Measurement, a collaboration between media and ad industries to determine how consumers view media and which devices they use, is sponsoring the study. The company would give 1,000 participants iPhones with a special app that they would log into every 30 minutes and answer questions about their media activities. Respondents give frequent updates on what and how they are consuming music and television, whether it is through streaming or downloading, on computers or television, or from subscription services or free. This type of research may be the closest researchers have come to living with research participants and to understanding how Americans consume media. Knowing how Americans watch programs would allow the media and ad industries to tailor delivery to the consumer and use the Internet to their advantage, rather than be left behind with outdated business models.
Advances in computer technology have enabled researchers to simulate an actual retail store environment on a computer screen. Depending on the type of simulation, a shopper can “pick up” a package by touching its image on the monitor and rotate it to examine all sides. Like buying on most online retailers, the shopper touches the shopping cart to add an item to the basket. During the shopping process, the computer unobtrusively records the amount of time the consumer spends shopping in each product category, the time the consumer spends examining each side of a product, the quantity of the product the consumer purchases, and the order in which items are purchased.Computer-simulated environments like this one offer a number of advantages over older research methods. First, the virtual store duplicates the distracting clutter of an actual market. Layouts can even be modified to reflect various types of retailers, such as drugstores or supermarkets, meaning that consumers can shop in an environment with a realistic level of complexity and variety. Second, researchers can set up and alter the tests very quickly. Data collection is also fast and error free because the information generated by the purchase is automatically tabulated and stored by the computer. Third, production costs are low because displays are created electronically. Once the hardware and software are in place, the cost of a test is largely a function of the number of respondents, who generally are given a small incentive to participate. Fourth, the simulation has a high degree of flexibility. It can be used to test entirely new marketing concepts or to fine-tune existing programs.7 Virtual shopping research is growing rapidly as companies such as Cadbury, Nestlé, PepsiCo, and Clorox realize the benefits from this type of observation research.8 About 150,000 new consumer packaged goods were introduced in the United States in 2010.9 All are vying for very limited retail shelf space. Any process, such as virtual shopping, that can speed product development time and lower costs is always welcomed by manufacturers.
An experiment is a method a researcher can use to gather primary data. The researcher alters one or more variables—price, package design, shelf space, advertising theme, advertising expenditures—while observing the effects of those alterations on another variable (usually sales). The best experiments are those in which all factors are held constant except the ones being manipulated. The researcher can then observe what changes in sales, for example, result from changes in the amount of money spent on advertising.
Specifying the Sampling Procedures
Once the researchers decide how they will collect primary data, their next step is to select the sampling procedures they will use. A firm can seldom take a census of all possible users of a new product, nor can they all be interviewed. Therefore, a firm must select a sample of the group to be interviewed. A sample is a subset from a larger population.Several questions must be answered before a sampling plan is chosen.
First, the population, or universe , of interest must be defined. This is the group from which the sample will be drawn. It should include all the people whose opinions, behavior, preferences, attitudes, and so on, are of interest to the marketer. For example, in a study whose purpose is to determine the market for a new canned dog food, the universe might be defined to include all current buyers of canned dog food.After the universe has been defined, the next question is whether the sample must be representative of the population. If the answer is yes, a probability sample is needed. Otherwise, a nonprobability sample might be considered.
A probability sample is a sample in which every element in the population has a known statistical likelihood of being selected. Its most desirable feature is that scientific rules can be used to ensure that the sample represents the population.One type of probability sample is a random sample —a sample arranged in such a way that every element of the population has an equal chance of being selected as part of the sample. For example, suppose a university is interested in getting a cross section of student opinions on a proposed sports complex to be built using student activity fees. If the university can acquire an up-to-date list of all the enrolled students, it can draw a random sample by using random numbers from a table (found in most statistics books) to select students from the list. Common forms of probability and nonprobability samples are shown in Exhibit 9.4.
Any sample in which little or no attempt is made to get a representative cross section of the population can be considered a nonprobability sample . Therefore the
probability of selection of each sampling unit is not known. A common form of a
nonprobability sample is the convenience sample , which uses respondents who are convenient or readily accessible to the researcher—for instance, employees, friends, or relatives.Nonprobability samples are acceptable as long as the researcher understands their nonrepresentative nature. Because of their lower cost, nonprobability samples are the basis of much marketing research.
Types of Errors
Whenever a sample is used in marketing research, two major types of errors may occur: measurement error and sampling error. Measurement error occurs when there is a difference between the information desired by the researcher and the information provided by the measurement process. For example, people may tell an interviewer that they purchase Crest toothpaste when they do not.
occurs when a sample somehow does not represent the target population. Sampling error can be one of several types. Nonresponse error occurs when the sample actually interviewed differs from the sample drawn. This error happens because the original people selected to be interviewed either refused to cooperate or were inaccessible.
another type of sampling error, arises if the sample drawn from a population differs from the target population. For instance, suppose a telephone survey is conducted to find out Chicago beer drinkers’ attitudes toward Coors. If a Chicago telephone directory is used as the frame (the device or list from which the respondents are selected), the survey will contain a frame error. Not all Chicago beer drinkers have phones, and many phone numbers are unlisted. An ideal sample (e.g., a sample with no frame error) matches all important characteristics of the target population to be surveyed. Could you find a perfect frame for Chicago beer drinkers?
occurs when the selected sample is an imperfect representation of the overall population. Random error represents how accurately the chosen sample's true average (mean) value reflects the population's true average (mean) value. For example, we might take a random sample of beer drinkers in Chicago and find that 16 percent regularly drink Coors beer. The next day we might repeat the same sampling procedure and discover that 14 percent regularly drink Coors beer. The difference is due to random error. Error is common to all surveys, yet it is often not reported or is underreported. Typically, the only error mentioned in a written report is sampling error.
Collecting the Data
Marketing research field service firms collect most primary data. A field service firm specializes in interviewing respondents on a subcontracted basis. Many have offices, often in malls, throughout the country. A typical marketing research study involves data collection in several cities, which requires the marketer to work with a comparable number of field service firms. Besides conducting interviews, field service firms provide focus group facilities, mall intercept locations, test product storage, and kitchen facilities to prepare test food products.
Analyzing the Data
After collecting the data, the marketing researcher proceeds to the next step in the research process: data analysis. The purpose of this analysis is to interpret and draw conclusions from the mass of collected data. The marketing researcher tries to organize and analyze those data by using one or more techniques common to marketing research: one-way frequency counts, cross-tabulations, and more sophisticated statistical analysis. Of these three techniques, one-way frequency counts are the simplest. One-way frequency tables simply record the responses to a question. For example, the answers to the question “What brand of microwave popcorn do you buy most often?” would provide a one-way frequency distribution. One-way frequency tables are always done in data analysis, at least as a first step, because they provide the researcher with a general picture of the study's results. A cross-tabulation lets the analyst look at the responses to one question in relation to the responses to one or more other questions. For example, what is the association between gender and the brand of microwave popcorn bought most frequently?Researchers can use many other more powerful and sophisticated statistical techniques, such as hypothesis testing, measures of association, and regression analysis. A description of these techniques goes beyond the scope of this book but can be found in any good marketing research textbook. The use of sophisticated statistical techniques depends on the researchers' objectives and the nature of the data gathered.
Preparing and Presenting the Report
After data analysis has been completed, the researcher must prepare the report and communicate the conclusions and recommendations to management. This is a key step in the process. If the marketing researcher wants managers to carry out the recommendations, he or she must convince them that the results are credible and justified by the data collected.Researchers are usually required to present both written and oral reports on the project. Today, the written report is no more than a copy of the Power-Point slides used in the oral presentation. Both reports should be tailored to the audience. They should begin with a clear, concise statement of the research objectives, followed by a complete, but brief and simple, explanation of the research design or methodology employed. A summary of major findings should come next. The conclusion of the report should also present recommendations to management.Most people who enter marketing will become research users rather than research suppliers. Thus, they must know what to notice in a report. As with many other items we purchase, quality is not always readily apparent. Nor does a high price guarantee superior quality. The basis for measuring the quality of a marketing research report is the research proposal. Did the report meet the objectives established in the proposal? Was the methodology outlined in the proposal followed? Are the conclusions based on logical deductions from the data analysis? Do the recommendations seem prudent, given the conclusions?
The final step in the marketing research process is to follow up. The researcher should determine why management did or did not carry out the recommendations in the report. Was sufficient decision-making information included? What could have been done to make the report more useful to management? A good rapport between the product manager, or whoever authorized the project, and the market researcher is essential. Often they must work together on many studies throughout the year.Typically, the research process flows rather smoothly from one step to the next in the United States. However, conducting research in international markets can create a whole host of problems and challenges.
The Profound Impact of the Internet on Marketing Research
Today, about one-fifth of the world's population is online. In the United States, 71 percent of the population is online, spanning every ethnic, socioeconomic, and educational divide.10 Most managers accept that online research can, under appropriate conditions, accurately represent U.S. consumers as a whole. Non-adopters of the Internet tend to be older, low-income consumers (aged 65+ with household income less than $30,000), who do not tend to be the target market for many goods and services.11 More than 90 percent of America's marketing research companies conduct some form of online research. Online survey research has replaced computer-assisted telephone interviewing (CATI) as the most popular mode of data collection, though there is no evidence of this or other traditional survey methods being completely replaced by online surveys.12 Internet data collection is also rated as having the greatest potential for further growth.
Advantages of Internet Surveys
The huge growth in the popularity of Internet surveys is the result of the many advantages offered by the Internet. The specific advantages of Internet surveys are related to many factors:
Rapid development, real-time reporting: Internet surveys can be broadcast to thousands of potential respondents simultaneously. Respondents complete surveys simultaneously; then results are tabulated and posted for corporate clients to view as the returns arrive. The result: survey results can be in a client's hands in significantly less time than would be required for traditional surveys.
Dramatically reduced costs: The Internet can cut costs by 25 to 40 percent and provide results in half the time it takes to do traditional telephone surveys. Traditional survey methods are labor-intensive efforts incurring training, telecommunications, and management costs. Electronic methods eliminate these completely. While costs for traditional survey techniques rise proportionally with the number of interviews desired, electronic solicitations can grow in volume with little increase in project costs.
Personalized questions and data: Internet surveys can be highly personalized for greater relevance to each respondent's own situation, thus speeding the response process.
Improved respondent participation: Internet surveys take half as much time to complete as phone interviews, can be accomplished at the respondent's convenience (after work hours), and are much more stimulating and engaging. As a result, Internet surveys enjoy much higher response rates.
Contact with the hard-to-reach: Certain groups—doctors, high-income professionals, top management in Global 2000 firms—are among the most surveyed on the planet and the most difficult to reach. Many of these groups are well represented online. Internet surveys provide convenient anytime/anywhere access that makes it easy for busy professionals to participate.
Uses of the Internet by Marketing Researchers
Marketing researchers are using the Internet to administer surveys, conduct focus groups, and perform a variety of other types of marketing research.
Methods of Conducting Online Surveys
There are several basic methods for conducting online surveys: Web survey systems, survey design and Web hosting sites, and online panel providers.
Web Survey Systems
Web survey systems are software systems specifically designed for Web questionnaire construction and delivery. They consist of an integrated questionnaire designer, Web server, database, and data delivery program, designed for use by non-programmers. The Web server distributes the questionnaire and files responses in a database. The user can query the server at any time via the Web for completion statistics, descriptive statistics on responses, and graphical displays of data. Some popular online survey research software packages are Sawtooth CiW, Infopoll, SurveyMonkey, and SurveyPro.
Survey Design and Web Hosting Sites
Several Web sites allow the researcher to design a survey online without loading design software. The survey is then administered on the design site's server. Some offer tabulation and analysis packages as well. One popular site that offers Web hosting services is Vovici.
Online Panel Providers
Often researchers use online panel providers for a ready-made sample population. Online panel providers such as Survey Sampling International and e-Rewards pre-recruit people who agree to participate in online market research surveys.Some online panels are created for specific industries and may have a few thousand panel members, while the large commercial online panels have millions of people waiting to be surveyed. When people join online panels, they answer an extensive profiling questionnaire that enables the panel provider to target research efforts to panel members who meet specific criteria.
Online Focus Groups
A relatively recent development in qualitative research is the online or cyber focus group. A number of organizations are currently offering this new means of conducting focus groups. The process is fairly simple. The research firm builds a database of respondents via a screening questionnaire on its Web site. When a client comes to a firm with a need for a particular focus group, the firm goes to its database and identifies individuals who appear to qualify. It sends an e-mail message to these individuals, asking them to log on to a particular site at a particular time scheduled for the group. The firm pays them an incentive for their participation.The firm develops a discussion guide similar to the one used for a conventional focus group, and a moderator runs the group by typing in questions online for all to see. The group operates in an environment similar to that of a chat room so that all participants see all questions and all responses. The firm captures the complete text of the focus group and makes it available for review after the group has finished.Online focus groups also allow respondents to view things such as a concept statement, a mockup of a print ad, or a short product demonstration video. The moderator simply provides a URL reference for the respondents to go to in another browser window. One of the risks of doing this, however, is that once respondents open another browser, they have “left the room” and the moderator may lose their attention; researchers must hope that respondents will return within the specified amount of time.More advanced virtual focus group software reserves a frame (section) of the screen for stimuli to be shown. Here, the moderator has control over what is shown in the stimulus area. The advantage of this approach is that the respondent does not have to do any work to see the stimuli.
Advantages of Online Focus Groups
Many advantages are claimed for cyber groups:
Better participation rates: Typically, online focus groups can be conducted over the course of days; once participants are recruited, they are less likely to pull out due to time conflicts.
Cost-effectiveness: Face-to-face focus groups incur costs for facility rental, airfare, hotel, and food. None of these costs is incurred with online focus groups. 9
Broad geographic scope: Time is flexible online; respondents can be gathered from all over the world.
Accessibility: Online focus groups give you access to individuals who otherwise might be difficult to recruit (e.g., business travelers, senior executives, mothers with infants).
Honesty: From behind their screen names, respondents are anonymous to other respondents and tend to talk more freely about issues that might create inhibitions in a face-to-face group.
Web Community Research, Text-Message-Based Research, and Blogging Assignments
A Web community is a carefully selected group of consumers who agree to participate in an ongoing dialogue with a particular corporation. All community interaction takes place on a custom-designed Web site. During the life of the community—which may last anywhere from six months to a year or more—community members respond to questions posed by the corporation on a regular basis. In addition to responding to the corporation's questions, community members talk to one another about topics that are of interest to them.The popularity and power of Web communities initially came from several key benefits. They:
engage customers in a space where they are comfortable, allowing clients to interact with them on a deeper level,
achieve customer-derived innovations,
establish brand advocates who are emotionally invested in a company's success, and
offer real-time results, enabling clients to explore ideas that normal time constraints prohibit. Additionally, Web communities help companies create a customer-focused organization by putting employees into direct contact with consumers from the comfort of their own desks, as well as providing cost-effective, flexible research.Two other relatively recent developments in Internet marketing research are text-message-based research and blogging assignments. Text-message-based research allows marketers to text a basic question (What are you drinking with lunch today?) and a follow-up to respondents (On a scale of 1 to 9, how much do you like your drink?). Because mobile phones are so prevalent, this type of research can reach most demographics, and it is very quick, resulting in higher feedback rates. For blogging assignments, which are different from consumer-generated blogs (covered below), marketers assign respondents to write a brief blog entry each time they use the product being reviewed. These blogs can span any amount of time and offer marketers a closer look at how consumers interact with products. Additionally, because the technology is relatively inexpensive, assignments can be given to larger numbers of respondents. These blogs are not public and are viewable only by the respondent and the marketer.
The Role of Consumer-Generated Media in Marketing Research
Consumer-generated media (CGM) are media that consumers generate themselves and share among themselves. CGM comes from various sources, such as blogs, message boards, review sites, and podcasts. Because it is consumer based, CGM is trusted more than traditional forms of advertising and promotion.15 CGM can be influenced but not controlled by marketers. Nielsen BuzzMetrics is the leading marketing research firm tracking CGM. BrandPulse is BuzzMetrics' most popular product. BrandPulse can tell a company how much “buzz” exists, where online discussion is taking place, the tone of the discussion, and which issues are most important. BrandPulse provides timely understanding of the opinions and trends affecting a company or brand. Depending on the information the customer needs, other BuzzMetrics products can go into further detail, such as detecting who would be a good candidate for relationship marketing programs.16
is a system for gathering information from a single group of respondents by continuously monitoring the advertising, promotion, and pricing they are exposed to and the things they buy. The variables measured are advertising campaigns, coupons, displays, and product prices. The result is a huge database of marketing efforts and consumer behavior.The two major scanner-based suppliers are Information Resources, Inc. (IRI) and the A. C. Nielsen Company. Each has about half of the market. However, IRI is the founder of scanner-based research. IRI's first product is called BehaviorScan . A household panel (a group of 3,000 long-term participants in the research project) has been recruited and maintained in each BehaviorScan town. Each panel member shops with an ID card, which is presented at the checkout in scanner-equipped grocery stores and drugstores, allowing IRI to track electronically each household's purchases, item by item, over time. It uses microcomputers to measure television viewing in each panel household and can send special commercials to panel member television sets. With such a measure of household purchasing, it is possible to manipulate marketing variables, such as television advertising or consumer promotions, or to introduce a new product and analyze real changes in consumer buying behavior.IRI's most successful product is InfoScan , a scanner-based sales-tracking service for the consumer packaged-goods industry. Retail sales, detailed consumer purchasing information (including measurement of store loyalty and total grocery basket expenditures), and promotional activity by manufacturers and retailers are monitored and evaluated for all bar-coded products. Data are collected weekly from more than 70,000 supermarkets, drugstores, and mass merchandisers.17 Some companies have begun studying microscopic changes in skin moisture, heart rate, brain waves, and other biometrics to see how consumers react to things such as package designs and ads. This neuromarketing approach is a fresh attempt to better understand consumers’ responses to promotion and purchase motivations.
When Should Marketing Research Be Conducted?
When managers have several possible solutions to a problem, they should not instinctively call for marketing research. In fact, the first decision to make is whether to conduct marketing research at all.Some companies have been conducting research in certain markets for many years. Such firms understand the characteristics of target customers and their likes and dislikes about existing products. Under these circumstances, further research would be repetitive and waste money. Procter & Gamble, for example, has extensive knowledge of the coffee market. After it conducted initial taste tests with Folgers Instant Coffee, P&G went into national distribution without further research. Sara Lee followed the same strategy with its frozen croissants, as did Quaker Oats with Chewy Granola Bars. This tactic, however, can backfire. Marketers may think they understand a particular market thoroughly and so bypass market research for a product, only to have the product fail and be withdrawn from the market.If information were available and free, managers would rarely refuse more, but because marketing information can require a great deal of time and expense to accumulate, they might decide to forgo additional information. Ultimately, the willingness to acquire additional decision-making information depends on managers’ perceptions of its quality, price, and timing. Research should be undertaken only when the expected value of the information is greater than the cost of obtaining it.
Derived from military intelligence, competitive intelligence is an important tool for helping a firm overcome a competitor's advantage. Specifically, competitive intelligence can help identify the advantage and play a major role in determining how it was achieved.
Competitive intelligence (CI)
helps managers assess their competitors and their vendors in order to become more efficient and effective competitors. Intelligence is analyzed information. It becomes decision-making intelligence when it has implications for the organization. For example, a primary competitor may have plans to introduce a product with performance standards equal to those of the company gathering the information but with a 15 percent cost advantage. The new product will reach the market in eight months. This intelligence has important decision-making and policy consequences for management. CI and environmental scanning (see Chapter 2) combine to create marketing intelligence. Marketing intelligence is then used as input into a marketing decision support system.The Internet is an important resource for gathering CI, but noncomputer sources can be equally valuable. Some examples include company salespeople, industry experts, CI consultants, government agencies, Uniform Commercial Code filings, suppliers, periodicals, the Yellow Pages, and industry trade shows.
Explain the concept and purpose of a marketing decision support system.
A decision support system (DSS) makes data instantly available to marketing managers and allows them to manipulate the data themselves to make marketing decisions. Four characteristics make a DSS especially useful to marketing managers: They are interactive, flexible, discovery oriented, and accessible. Decision support systems give managers access to information immediately and without outside assistance. They allow users to manipulate data in a variety of ways and to answer “what if” questions. And, finally, they are accessible to novice computer users.
Define marketing research and explain its importance to marketing decision making.
Marketing research is a process of collecting and analyzing data for the purpose of solving specific marketing problems. Marketers use marketing research to explore the profitability of marketing strategies. They can examine why particular strategies failed and analyze characteristics of specific market segments. Managers can use research findings to help keep current customers. Moreover, marketing research allows management to behave proactively, rather than reactively, by identifying newly emerging patterns in society and the economy.
Describe the steps involved in conducting a marketing research project.
The marketing research process involves several basic steps. First, the researcher and the decision maker must agree on a problem statement or set of research objectives. The researcher then creates an overall research design to specify how primary data will be gathered and analyzed. Before collecting data, the researcher decides whether the group to be interviewed will be a probability or nonprobability sample. Field service firms are often hired to carry out data collection. Once data have been collected, the researcher analyzes them using statistical analysis. The researcher then prepares and presents oral and written reports, with conclusions and recommendations, to management. As a final step, the researcher determines whether the recommendations were implemented and what could have been done to make the project more successful.
Discuss the profound impact of the Internet on marketing research.
The Internet has simplified the secondary data search process. Internet survey research is surging in popularity. Internet surveys can be created rapidly, are reported in real time, are relatively inexpensive, and are easily personalized. Often researchers use the Internet to contact respondents who are difficult to reach by other means. The Internet can also be used to conduct focus groups, to distribute research proposals and reports, and to facilitate collaboration between the client and the research supplier. Text-message-based research and giving consumers blogging assignments are new trends that give marketers quick feedback (text-messaging) or in-depth information over time (blogging).
Discuss the growing importance of scanner-based research.
A scanner-based research system enables marketers to monitor a market panel's exposure and reaction to such variables as advertising, coupons, store displays, packaging, and price. By analyzing these variables in relation to the panel's subsequent buying behavior, marketers gain useful insight into sales and marketing strategies.