Multimedia Marketing/Marketing.iso/market/chapter4.1p

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CHAPTER 4  Marketing Research and Information Systems

SECTION 4.1  Collecting Marketing Information

INSTRUCTIONS Try to answer the question: "What kinds of information do marketing
personnel need, in order to carry out their jobs effectively?"

EXAMPLE

The 1980's marked the rapid expansion of the fast food business,
with overall industry sales growing at an annual compound rate of
10 percent during the period. Many companies prospered. Growth
was not universal within the industry, however. Several companies,
even some large ones, lost considerable ground during the period.

A major characteristic separating the winners and the losers was
the former's dedication to the diligent use of carefully gathered
and analyzed market information. For example, one large corporation
learned through research that it could greatly expand profits by
adding breakfast entries. Another finding was that locating
stores near where people gathered, such as in shopping malls,
hospitals, and school cafeterias, could significanly increase total
business as opposed to locating just near where people live. The
company also began to improve the effectiveness of its advertising
and other promotion campaigns based upon research findings.

In contrast, the managers of many of the companies that lost ground
continued to make their decisions on the basis of intuition. Their
performance suffered as a result. Simply put, they were not in touch
with their markets.

DETAILS

Management can adopt one of three styles of using information when
making decisions: relying primarily on intuition, on informally
collected data, or on information collected on a systematic and
objective way.

The experience of a regional fast food franchise illustrates the
results of relying on blind intuition. Through insight and without
any market testing, management introduced the "heroburger"--a
rectangular sandwich instead of the customary oval-shaped one.
Management was so convinced of its salability that all other sandwiches
were pulled from the menu. The chairman of the company later lamented:
We shot ourselves out of the water with that one!"

This is not to imply that all intuition is wrong or bad. In fact,
some marketers who have depended upon this method have been very
successful. Their companies have become major corporations. But these
are in the minority. For every great success story there are ten or
twenty examples of miserable failure. And many of the successes have
been based more upon pure chance--management was lucky. But it is
a major mistake to place too much faith in luck--it is a two edged
coin.

Informally collected information can also be used, as when a butcher
asks regular customers how they enjoyed their last roast. While it is
a step in the right direction because it at least asks customers what
they think, such informal data can also lead to poor decisions because
of the inherent personal bias involved. Who qualifies as a regular
customer" Are these people representative of the market at large? Did
the butcher ask the questions objectively, without bias? These are
important questions because answers to them will greatly affect the
value of the information gained.

PROBLEM 1

A marketing manager for a dry cat food manufacturer has decided, based
on his judgment, that the firm should move into the canned cat food
market. This decision may be in error because of:

A. Erroneous analysis.
B. Lack of a theory base.
C. Lack of "common sense".
D. Personal bias.

WORKED

A marketing manager for a dry cat food manufacturer has decided, based
on his judgment, that the firm should move into the canned cat food
market. This decision may be in error because of personal bias. Most
people have a bias for or against a particular decision. It may be
based on attitudes and beliefs and not upon fact. In turn, such
decisions often are in error. Perhaps this manager has a feeling
that cats will like the canned food better or that cat owners will
prefer buying it, based upon his own opinions. But the cats and the
cat owners may not agree with this judgment.

ANSWER  D

INSTRUCTIONS Try to answer the question: "What kinds of information do marketing
personnel need, in order to carry out their jobs effectively?"

EXAMPLE

The 1980's marked the rapid expansion of the fast food business,
with overall industry sales growing at an annual compound rate of
10 percent during the period. Many companies prospered. Growth
was not universal within the industry, however. Several companies,
even some large ones, lost considerable ground during the period.

A major characteristic separating the winners and the losers was
the former's dedication to the diligent use of carefully gathered
and analyzed market information. For example, one large corporation
learned through research that it could greatly expand profits by
adding breakfast entries. Another finding was that locating
stores near where people gathered, such as in shopping malls,
hospitals, and school cafeterias, could significanly increase total
business as opposed to locating just near where people live. The
company also began to improve the effectiveness of its advertising
and other promotion campaigns based upon research findings.

In contrast, the managers of many of the companies that lost ground
continued to make their decisions on the basis of intuition. Their
performance suffered as a result. Simply put, they were not in touch
with their markets.

DETAILS

Management may pursue a systematic and objective style of getting data,
like that practiced by some of the leading fast food franchisors.
This style is much more likely than the other two to result in a
solid decision because it is founded on obtaining needed, accurate,
and unbiased information about the firm's environment. While intuition
and judgment will always be valuable, decisions based on systematically
and objectively collected information significantly increase a
company's chances for success.

A systematic style of gathering information means that a specific
set of procedures are employed to make sure that all steps are
performed as planned. Nothing is left to chance. The people who gather
the data are told how they should do the work and they must adhere
to these instructions and not substitute their own judgment on how
to do it. When the butcher talks to his customers this is not
systematic--much of it is random.

An objective method of gathering data is unbiased. Here the intent
is to discover that which is true, regardless of the personal
preferences of management or the researcher. Subjectivity is not
allowed to creep in. The efforts of the butcher are probably not
objective. He probably visited with good customers more than he did
with others, for example.

PROBLEM 2

A producer of breath-fresheners is considering introducing a new
offering in capsule form. The preferred way of collecting information
on whether or not to introduce the product is:

A. Reliably and with validity.
B. Completely and exclusively.
C. Systematically and objectively.
D. Comprehensively and scientifically.

WORKED

A producer of breath fresheners should collect information
systematically and objectively, in deciding whether or not to
introduce a new product. In this context "systematically" means
to follow a logical prearranged series of steps, rather than
proceeding haphazardly. Company personnel should decide exactly
what information they need for the decision and then make a careful
plan for acquiring the information in a timely manner. "Objectively"
means in a non-biased manner. The information gathered should not be
tainted by the personal feelings or desires of the marketing personnel.
Instead it should be scientifically verifiable.

ANSWER  C

INSTRUCTIONS Try to answer the question: "What kinds of information do marketing
personnel need, in order to carry out their jobs effectively?"

EXAMPLE

The 1980's marked the rapid expansion of the fast food business,
with overall industry sales growing at an annual compound rate of
10 percent during the period. Many companies prospered. Growth
was not universal within the industry, however. Several companies,
even some large ones, lost considerable ground during the period.

A major characteristic separating the winners and the losers was
the former's dedication to the diligent use of carefully gathered
and analyzed market information. For example, one large corporation
learned through research that it could greatly expand profits by
adding breakfast entries. Another finding was that locating
stores near where people gathered, such as in shopping malls,
hospitals, and school cafeterias, could significanly increase total
business as opposed to locating just near where people live. The
company also began to improve the effectiveness of its advertising
and other promotion campaigns based upon research findings.

In contrast, the managers of many of the companies that lost ground
continued to make their decisions on the basis of intuition. Their
performance suffered as a result. Simply put, they were not in touch
with their markets.

DETAILS

There are four major reasons why marketers systematically collect
information. First, many firms are geographically separated from
the bulk of their markets. A producer of plumbing fixtures, for
example, is located in Wisconsin but relies for sales on customers
around the globe. Collecting information about these distant markets
is essential so that management can make intelligent decisions about
what is needed in far-away places.

Second, important information is seldom obvious. Why do some people
buy detergents from in-home sales representatives, for example,
while others buy competitive items in supermarkets? Accurate answers
to important behavioral questions may be essential in deciding
effective strategy, yet the answers may be difficult for management
to provide without conducting research.

Executive isolation is a third reason for collecting market information.
Highly-paid, well-educated top managers have needs, activities, and
desires far removed from all but a few market segments. Relying on
collected market information enables them to make effective decisions
relating to all target markets.

Finally, accurate and carefully researched information is needed
because of the high costs of making a mistake. A plant expansion
might cost ,250 million or more or a large-scale advertising
budget might exceed ,200 million per year. Management cannot afford
to risk making a wrong decision on the basis of mere hunches or guesses.

The ten major types of marketing research studies are (in decreasing
order of usage):

1. Forecasting sales.
2. Measuring the sales potential of markets.
3. Analysis of the market share of the company.
4. Analysis of the characteristics of markets.
5. Breakdowns of sales by geographic area and type of product and
   type of customer.
6. Competitive product studies.
7. Pricing studies.
8. Distribution channels research.
9. Packaging research.
10.Plant and warehouse location studies.

PROBLEM 3

What is not a reason why a marketer of fruit drinks should
collect marketing information?

A. Management wants to justify not dropping a particular flavor.
B. The costs of making mistakes in marketing can be great.
C. Important marketing information is not obvious.
D. Marketing executives are often isolated from target customers.

WORKED

A marketer of fruit drinks should collect marketing information
because the company is geographically separated from its market,
important information is seldom obvious, executive isolation is
likely, and the costs of making a mistake can be substantial.

If the company conducts marketing research to justify a decision
that has already been made--such as not dropping a particular
flavor--this can be a serious mistake. Marketing information is
conducted to provide systematic and objective inputs for decision
making. It should not be used merely to support personal feelings
and beliefs. When this is the case, marketing research can lose its
objectivity and become a mere public relations tool.

ANSWER  A

INSTRUCTIONS Try to answer the question: "What kinds of information do marketing
personnel need, in order to carry out their jobs effectively?"

EXAMPLE

The 1980's marked the rapid expansion of the fast food business,
with overall industry sales growing at an annual compound rate of
10 percent during the period. Many companies prospered. Growth
was not universal within the industry, however. Several companies,
even some large ones, lost considerable ground during the period.

A major characteristic separating the winners and the losers was
the former's dedication to the diligent use of carefully gathered
and analyzed market information. For example, one large corporation
learned through research that it could greatly expand profits by
adding breakfast entries. Another finding was that locating
stores near where people gathered, such as in shopping malls,
hospitals, and school cafeterias, could significanly increase total
business as opposed to locating just near where people live. The
company also began to improve the effectiveness of its advertising
and other promotion campaigns based upon research findings.

In contrast, the managers of many of the companies that lost ground
continued to make their decisions on the basis of intuition. Their
performance suffered as a result. Simply put, they were not in touch
with their markets.

DETAILS

An important question is "How much information should be collected?"
The amount of information can vary from nothing to a vast amount of
detail. Too little information results in needless risk, but attempting
to collect too much information involves excessive costs. Therefore,
it is prudent for management to make a tradeoff between the cost of
collecting and analyzing additional information and the estimated
cost of making a wrong decision is the information is not collected.

This problem can be resolved by subtracting the costs associated
with research from the projected sales that would result using
research and comparing this with projected sales that would result
if research were not used. The result is an estimate of the value
of the research. If the value is substantial, or is even negative,
management may decide to forego research.

This method does require making some forecasts of costs and of
sales. Forecasts, of course, are subject to error, so the calculations
may also contain error. But estimates such as these represent
management's best estimation of the value of the research.

PROBLEM 4

A producer of women's shaving systems is contemplating a new
advertising campaign for the systems. It is estimated that sales
produced by the campaign without guidance from marketing research
will be ,41 million. In turn it is estimated that sales produced
by the campaign and guided by research will be ,44 million. The
marketing research will cost ,2 million. Since it will take
several months to do the research, sales receipts will be delayed
and this will cost the company 2 million. The net value of the
research is:

A. ,3 million
B. ,4 million
C. ,6 million
D. Minus ,1 million

WORKED

In determining the value of research (and as a corollary if it
should be conducted) management should forecast the difference in
sales of situations where the research is conducted and where it
is not conducted. All of the costs of doing the research should
be subtracted from this figure. The costs of doing the research
include direct costs of the research, costs of reduced sales
because of delays while the research is being conducted, possible
sales losses because rivals may moniter the research and capitalize
by increasing their own sales, and the possible costs of making
errors in the research.

A producer of frozen sandwiches is considering the introduction of
a new sandwich. It is estimated that sales emanating from the new
offering with research will be ,28 million and without research will
be ,20 million. The costs associated with the research are:
 .Direct research costs--,1million.
 .Costs of a delayed decision-- ,2million.
 .Costs of tipping off rivals-- ,2 million.
 .Costs of marketing research error--,1million.

The value of the research is  ,28 million minus [,20 million +
,1million + ,2million + ,2million + ,1million] = ,2 million.

ANSWER  D