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Mm week 2 marketing research


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  • 1. Marketing ManagementFREDY-ROBERTO VALUENZUELAWeek 2 topic notes:Marketing researchThe starting point of a market orientation is market intelligence. Market intelligence is abroader concept than customers’ verbalized needs and preferences…it includes an analysis ofexogenous factors that influence those needs and preferences. (Kohli & Jaworski 1990, p.4)Kohli and Jaworski argue that market oriented firms engage in intelligence generation in orderto understand consumer needs, disseminate the information to all departments in theorganisation and take actions to respond to the intelligence that was gathered anddisseminated.This topic looks at the systems in place in organisations for the collection, evaluation anddissemination of information required for marketing decision making.No matter what type of marketing organisation we refer to, marketing managers need a greatdeal of information to carry out their marketing activities. However, despite the growing supplyof information, managers often lack enough information of the right kind or have too much ofthe wrong kind. To overcome these problems, many companies are taking steps to improvetheir marketing information systems. In this topic the marketing information system isdiscussed, along with the marketing research process, thus showing the types of informationgathered and how it is gathered.We know that marketing is the process of planning and executing the conception, pricing,promotion and distribution of products and services to best satisfy customers’ needs externallyand to maximise profits internally. Marketing research is a critical element throughout such aprocess. It helps to improve management decision-making by providing information that isRelevant, Accurate, and Timely (RAT) (Aaker, Kumar & Day, 2001). Effective decision-making inmarketing management relies heavily on the availability of good marketing information whichcan be used to make informed decisions. This point has come out in every topic of the subjectnotes so far. Two other points are equally important.First, establishing a process of managing marketing information is as important as establishingthat the information is available. This means ensuring that the information is timely andaccurate and that it is possible quickly to sift through masses of data to find those that arepertinent to the decision problem at hand. Marketing information systems (MISs) have beendeveloped for these reasons, discussed below.The second point concerns the origin of the demand for marketing information. This is theconsumer, which is why in this subject we place considerable emphasis on consumer behaviour_______________________________________________________________________________________________________________________________________1 / Marketing Management > Marketing Research © uneOpen, all rights reserved
  • 2. and demand. All demands for marketing information depend on decisions about the nature andextent of consumer behavioural response to external stimuli and internal forces.Marketing research is obviously the source of much marketing knowledge and information in abusiness firm. It is a large topic that we can explore only briefly in this subject.One of the most important applications of marketing research is to measure and forecastdemand. It is an essential activity for an organisation and the most important part of almost anybusiness plan. According to a survey in the US (Kinnear & Taylor 1996), a majority of companiesdo research in at least one of the following areas:• determining market characteristics• measuring market potential• short-and long-range forecasting.Marketing managers need accurate measures of current and future market size – that’s a largepart of their job. For estimating future demand, the company can use one or a combination ofseven possible forecasting methods, based on what consumers say (buyers’ intentionssurveys, composite of salesforce opinions, expert opinion); what consumers do (test marketing); orwhat consumers have done (time-series analysis, leading indicators, and statistical demandanalysis). The best method to use depends on the purpose of the forecast, the type of product,and the availability and reliability of data.Information management - information needs in marketingIn a comment on a report by a task force of the American Marketing Association, Garda (1988,pp. 33–35) outlined four overlapping levels of marketing knowledge a firm needs in order tocompete successfully and create demand for the products it sells:• concepts and theories of marketing• frameworks that help a marketer think about a marketing concept, and integrateinformation on markets, customers, competitive structure and channel information• analytical techniques and tools to fit into the analytical frameworks• data on markets and competitive structures.There is no doubt that the use of marketing information is a key feature in making decisions andtaking actions in marketing management. This is stressed in virtually all marketing managementtextbooks. The importance of information in marketing is its central role in decision-making.There are a broad range of matters in the external marketing environment about whichinformation is needed by a firm. Detailed information is also needed about the marketing mixvariables: product, price, place and promotional activities.There is another critical information need about organisational behaviour. Marketing isintegrated into an organisation’s general activities and marketing behaviour is closely identifiedwith general organisational behaviour. Hence, the internal dynamics of the organisation need tobe considered along with the more specific marketing information needs._______________________________________________________________________________________________________________________________________2 / Marketing Management > Marketing Research © uneOpen, all rights reserved
  • 3. The marketing information systemThe provision of information for marketing management is best met through a demand-driven,systematic approach to its collection, analysis and dissemination. Hence the rise to prominenceof the marketing information system, which provides a framework for the tactics used inmanaging information. The concept of a marketing information system to gather and userelevant marketing information is akin to the more common management information systemconcept in the general management literature and referred to by the same acronym – MIS – justto confuse things! To avoid this confusion, the acronym will be avoided in these notes.But the key point to make here is that a marketing information system should be a sub-set of thegeneral management information system. Remember too that an important part of the former isinformation on general organisational activities and behaviour.The marketing research processMarketing research is a fundamental part of managing marketing information to enhanceknowledge for decision-making.Marketing research is a broad process, not to be confused with market research which usuallyrefers simply to a method of conducting research, specifically surveying consumer attitudes toproducts or ideas. Hence, market research, so defined, is a very narrow part of marketingresearch.There are several data-collecting methods commonly used in conducting research. One isreferred to above – survey research – in which consumers are surveyed about their knowledge,attitudes, preferences or buying behaviour. Second, experimental research usually entails theregression of some key variable in which the researcher is interested upon possible explanatoryvariables in an attempt to establish causal relationships to some degree of significance. Thefocus group interview is widely recognised as a very effective way of gaining insight intoconsumer thoughts and feelings. However, by using this method it is often hard to generalisefrom the results because of small sample sizes. Interviewer’s bias is another problem that maymisinterpret the data.Estimation of consumer demandThe estimation of demand is a crucial concept in respect to marketing research and the searchfor information and knowledge about a market.The pre-eminent role of consumer demand estimation in marketing research derives from itsimportance in market planning (Bagozzi 1986, p. 283):• The production division relies on forecasts of demand for scheduling in the productionprocess.• Inventory personnel need demand forecasts to enable them to make decisions onordering and stock carrying._______________________________________________________________________________________________________________________________________3 / Marketing Management > Marketing Research © uneOpen, all rights reserved
  • 4. • The personnel division uses demand forecasts in estimating future workforcerequirements.• The operations of the purchasing, shipping and receival divisions are affected bydemand levels because these levels determine the volume of throughput.• The finance and accounting divisions use demand forecasts in setting budgets.• Demand forecasts are essential for effective strategic and tactical marketingmanagement.• Last but not least, a role not mentioned by Bagozzi is the increasingly important functionof consumers as innovators in a firm’s R&D process. Japanese electronics firms havegreatly improved existing product performance by responding to consumers’ ideas.The concept of demandYou need to ensure you understand the following concepts in demand estimation:• the demand function, i.e., the relationship between product price and the quantity of theproduct demanded• causes of shifts in consumer demand, which may be endogenous to, and controllable by,the firm (marketing mix variables), or exogenous to the marketing system and beyondthe influence of marketing management of the firm (e.g., economic conditions andcultural values of consumers)• marketing effort, reflected in the relationship between level of sales and variablesendogenous to the firm• industry demand, being the summation of demand by consumers for products of allfirms in an industry• market forecast, which is some future volume of sales achievable in an industry for agiven marketing effort and specified product price• timing, reflecting different needs of a firm for demand estimation according to the stagein its life cycle reached by the product being marketed.Beware of a conceptual error made often where demand is equated with sales. Sales are theoutcome of the interaction of demand and supply forces. Sales data can give a reasonable ideaof demand if you simultaneously examine price data.Methods of estimating consumer demandKotler et al. (2009, pp. 114–121) present several common ways of forecasting demand, such asbuyers’ survey, expert opinion, test-market method, and time series analysis. Bagozzi outlinesthe methods of estimating consumer demand from a different angle. He classifies the forecastingmethods into three categories: heuristic, subjective and objective. As a general comment on themethods, there is little of the rigour one would expect in an advanced econometrics course, withthe exception of some objective estimation methods (particularly time series analysis andmultiple regression analysis). Nevertheless, this pragmatic approach has proven to be cost- andtime-effective in giving at least rough order of magnitude estimates that business firms can use._______________________________________________________________________________________________________________________________________4 / Marketing Management > Marketing Research © uneOpen, all rights reserved
  • 5. Heuristic estimation methodsHeuristic methods of estimating demand are those which are based on no theoretical groundsbut depend on inductive reasoning from past experience and observations of similar situations.They are often termed rule-of-thumb methods. Their main usefulness is in the information theygive on market potential.Bagozzi (1986, pp. 287–294) discusses and assesses three heuristic methods of demandestimation:• The chain ratio method is a method of decomposing aggregate demand according tostipulated criteria to arrive at the demand for a particular brand of product in aparticular market.• The standard industrial classification (SIC) method is based on the classification ofindustries that exist in a specific area to work out the market potential for a product,usually an industrial product; and• The index of buying power method estimates the purchasing power of a market on thebasis of retail sales and two major demand shifters—population and income. It isparticularly useful for estimating the demand for mass consumption goods.Subjective estimation methodsThe three subjective methods for estimating demand are more empirically based and morespecific to particular product and firm situations than heuristic methods in that they give moredirect estimates of demand for a particular firm’s products.The first method is the Delphi method. This entails the anonymous elicitation of opinions andjudgments about demand for a product from a small group of people, usually experts inmarketing, until a consensus is reached. After each round, the median result is communicated toindividuals in the group who can then revise their answers.In the second method, the sales force composite method, reliance is placed on the sales forcefor estimates of sales in their area and then a composite picture is drawn up from theseestimates for the total sales potential of a product for the firm.Thirdly, demand estimation through buyer intentions is used to obtain the purchaseintentions of a sample of consumers. While this would seem to be the subjective method mostlikely to give an accurate picture of consumers’ purchase activities, it is difficult to elicitaccurately buyers’ intentions and they often do not approximate actual purchases. Sophisticatedtechniques have been developed in recent years to alleviate these difficulties.Objective methods of demand estimationThe most common and simplest of objective methods of demand estimation are those thatextrapolate from historical data on sales. These vary from naive measures and linear trends andtrends adjusted for seasonality and business cycles to more sophisticated time series analysissuch as Box-Jenkins, multivariate and co-integration methods.These methods of time series analyses have been criticised for being theoretical. Othereconometric methods based on economic theory and using multiple regression analysis havealso been used._______________________________________________________________________________________________________________________________________5 / Marketing Management > Marketing Research © uneOpen, all rights reserved
  • 6. Ethics in marketing researchIn recent years, some of the methods used in marketing research have come under criticalscrutiny. Several significant changes in ethical judgments have been recently observed in theUSA (Aaker, Kumar & Day, 2001).ReferencesAaker, D. A., Kumar, V., & Day, G. S. (2001). Marketing research. (7th ed.). John Wiley & Sons, Inc.Bagozzi, R. P. (1986). Principles of marketing management, New York: Macmillan.Garda, R. A. (1988). AMA task force report: comment. Journal of Marketing, 52(4), 32–41.Kinnear, T. C., & Taylor J. R. (1996). Marketing research: an applied approach, McGraw-Hill Inc.Kotler et al. 2009. Marketing 8ed. Pearson Education._______________________________________________________________________________________________________________________________________6 / Marketing Management > Marketing Research © uneOpen, all rights reserved