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Mm week 2 marketing research


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  • 1. Marketing Management FREDY-ROBERTO VALENZUELA Week 2 topic notes: Marketing research The starting point of a market orientation is market intelligence. Market intelligence is a broader concept than customers’ verbalized needs and preferences…it includes an analysis of exogenous 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 order to understand consumer needs, disseminate the information to all departments in the organisation and take actions to respond to the intelligence that was gathered and disseminated. This topic looks at the systems in place in organisations for the collection, evaluation and dissemination of information required for marketing decision making. No matter what type of marketing organisation we refer to, marketing managers need a great deal of information to carry out their marketing activities. However, despite the growing supply of information, managers often lack enough information of the right kind or have too much of the wrong kind. To overcome these problems, many companies are taking steps to improve their marketing information systems. In this topic the marketing information system is discussed, along with the marketing research process, thus showing the types of information gathered 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 externally and to maximise profits internally. Marketing research is a critical element throughout such a process. It helps to improve management decision-making by providing information that is Relevant, Accurate, and Timely (RAT) (Aaker, Kumar & Day, 2001). Effective decision-making in marketing management relies heavily on the availability of good marketing information which can be used to make informed decisions. This point has come out in every topic of the subject notes so far. Two other points are equally important. First, establishing a process of managing marketing information is as important as establishing that the information is available. This means ensuring that the information is timely and accurate and that it is possible quickly to sift through masses of data to find those that are pertinent to the decision problem at hand. Marketing information systems (MISs) have been developed for these reasons, discussed below. The second point concerns the origin of the demand for marketing information. This is the consumer, 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 and extent of consumer behavioural response to external stimuli and internal forces. Marketing research is obviously the source of much marketing knowledge and information in a business 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 forecast demand. It is an essential activity for an organisation and the most important part of almost any business plan. According to a survey in the US (Kinnear & Taylor 1996), a majority of companies do 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 large part of their job. For estimating future demand, the company can use one or a combination of seven possible forecasting methods, based on what consumers say (buyers’ intentions surveys, composite of salesforce opinions, expert opinion); what consumers do (test marketing); or what consumers have done (time-series analysis, leading indicators, and statistical demand analysis). 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 marketing In 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 to compete 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 integrate information 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 and taking actions in marketing management. This is stressed in virtually all marketing management textbooks. 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 which information is needed by a firm. Detailed information is also needed about the marketing mix variables: product, price, place and promotional activities. There is another critical information need about organisational behaviour. Marketing is integrated into an organisation’s general activities and marketing behaviour is closely identified with general organisational behaviour. Hence, the internal dynamics of the organisation need to be considered along with the more specific marketing information needs. _______________________________________________________________________________________________________________________________________ 2 / Marketing Management > Marketing Research © uneOpen, all rights reserved
  • 3. The marketing information system The 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 prominence of the marketing information system, which provides a framework for the tactics used in managing information. The concept of a marketing information system to gather and use relevant marketing information is akin to the more common management information system concept in the general management literature and referred to by the same acronym – MIS – just to 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 the general management information system. Remember too that an important part of the former is information on general organisational activities and behaviour. The marketing research process Marketing research is a fundamental part of managing marketing information to enhance knowledge for decision-making. Marketing research is a broad process, not to be confused with market research which usually refers simply to a method of conducting research, specifically surveying consumer attitudes to products or ideas. Hence, market research, so defined, is a very narrow part of marketing research. There are several data-collecting methods commonly used in conducting research. One is referred to above – survey research – in which consumers are surveyed about their knowledge, attitudes, preferences or buying behaviour. Second, experimental research usually entails the regression of some key variable in which the researcher is interested upon possible explanatory variables in an attempt to establish causal relationships to some degree of significance. The focus group interview is widely recognised as a very effective way of gaining insight into consumer thoughts and feelings. However, by using this method it is often hard to generalise from the results because of small sample sizes. Interviewer’s bias is another problem that may misinterpret the data. Estimation of consumer demand The estimation of demand is a crucial concept in respect to marketing research and the search for information and knowledge about a market. The pre-eminent role of consumer demand estimation in marketing research derives from its importance in market planning (Bagozzi 1986, p. 283): • The production division relies on forecasts of demand for scheduling in the production process. • Inventory personnel need demand forecasts to enable them to make decisions on ordering and stock carrying. _______________________________________________________________________________________________________________________________________ 3 / Marketing Management > Marketing Research © uneOpen, all rights reserved
  • 4. • The personnel division uses demand forecasts in estimating future workforce requirements. • The operations of the purchasing, shipping and receival divisions are affected by demand 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 marketing management. • Last but not least, a role not mentioned by Bagozzi is the increasingly important function of consumers as innovators in a firm’s R&D process. Japanese electronics firms have greatly improved existing product performance by responding to consumers’ ideas. The concept of demand You 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 the product 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 beyond the influence of marketing management of the firm (e.g., economic conditions and cultural values of consumers) • marketing effort, reflected in the relationship between level of sales and variables endogenous to the firm • industry demand, being the summation of demand by consumers for products of all firms in an industry • market forecast, which is some future volume of sales achievable in an industry for a given marketing effort and specified product price • timing, reflecting different needs of a firm for demand estimation according to the stage in its life cycle reached by the product being marketed. Beware of a conceptual error made often where demand is equated with sales. Sales are the outcome of the interaction of demand and supply forces. Sales data can give a reasonable idea of demand if you simultaneously examine price data. Methods of estimating consumer demand Kotler et al. (2009, pp. 114–121) present several common ways of forecasting demand, such as buyers’ survey, expert opinion, test-market method, and time series analysis. Bagozzi outlines the methods of estimating consumer demand from a different angle. He classifies the forecasting methods into three categories: heuristic, subjective and objective. As a general comment on the methods, there is little of the rigour one would expect in an advanced econometrics course, with the exception of some objective estimation methods (particularly time series analysis and multiple regression analysis). Nevertheless, this pragmatic approach has proven to be cost- and time-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 methods Heuristic methods of estimating demand are those which are based on no theoretical grounds but 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 they give on market potential. Bagozzi (1986, pp. 287–294) discusses and assesses three heuristic methods of demand estimation: • The chain ratio method is a method of decomposing aggregate demand according to stipulated criteria to arrive at the demand for a particular brand of product in a particular market. • The standard industrial classification (SIC) method is based on the classification of industries 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 the basis of retail sales and two major demand shifters—population and income. It is particularly useful for estimating the demand for mass consumption goods. Subjective estimation methods The three subjective methods for estimating demand are more empirically based and more specific to particular product and firm situations than heuristic methods in that they give more direct estimates of demand for a particular firm’s products. The first method is the Delphi method. This entails the anonymous elicitation of opinions and judgments about demand for a product from a small group of people, usually experts in marketing, until a consensus is reached. After each round, the median result is communicated to individuals in the group who can then revise their answers. In the second method, the sales force composite method, reliance is placed on the sales force for estimates of sales in their area and then a composite picture is drawn up from these estimates for the total sales potential of a product for the firm. Thirdly, demand estimation through buyer intentions is used to obtain the purchase intentions of a sample of consumers. While this would seem to be the subjective method most likely to give an accurate picture of consumers’ purchase activities, it is difficult to elicit accurately buyers’ intentions and they often do not approximate actual purchases. Sophisticated techniques have been developed in recent years to alleviate these difficulties. Objective methods of demand estimation The most common and simplest of objective methods of demand estimation are those that extrapolate from historical data on sales. These vary from naive measures and linear trends and trends adjusted for seasonality and business cycles to more sophisticated time series analysis such as Box-Jenkins, multivariate and co-integration methods. These methods of time series analyses have been criticised for being theoretical. Other econometric methods based on economic theory and using multiple regression analysis have also been used. _______________________________________________________________________________________________________________________________________ 5 / Marketing Management > Marketing Research © uneOpen, all rights reserved
  • 6. Ethics in marketing research In recent years, some of the methods used in marketing research have come under critical scrutiny. Several significant changes in ethical judgments have been recently observed in the USA (Aaker, Kumar & Day, 2001). References Aaker, 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