Archive for October, 2009

Don’t Scrimp on Marketing Research

October 12, 2009

There’s no question marketing research can be expensive.  Even if your company is doing it in-house, marketing research still requires time and staff.  Even if the research is entirely secondary, and can be found in libraries or on the Internet, someone has to collect the information.  There is considerable opportunity cost to conducting marketing research in-house, as the time an employee spends compiling, summarizing, analyzing, and presenting information cannot be dedicated to other projects.  Yet, budget constraints often dictate tradeoffs that must be made for marketing research projects, and often these tradeoffs are made carelessly.

Two obvious ways companies scrimp on their research budgets are selecting a vendor solely on the basis of cost and deciding to perform the research in-house.  Companies also make tradeoffs by using smaller sample sizes for surveys, choosing nonprobability over probability sampling methods, or opting for secondary over primary research, among others.

None of these tradeoffs is inherently bad.  Indeed, when budgets are scarce, you may need to make several in order to balance the scope of your project against your budget constraints.  A decision based on a little good marketing research is still more solid compared to totally unaided judgment.  But the key word here is good.  When cost becomes the overriding constraint for marketing research, companies run the risk of throwing the baby out with the bathwater.

Pitfalls of in-house research using inexpensive survey tools

Generally, when conducting a survey, you want to choose a sample that adequately represents the population in which you’re interested.  If your company is marketing a product or service to low-income Hispanics, conducting an inexpensive online survey is either going to result in several respondents who don’t fit that demographic, or so few responses, as many low-income Hispanics are unlikely to have Internet access.  Yet many companies make use of inexpensive online survey tools like SurveyMonkey for the very reason that it is inexpensive, and the results they obtain are useless because either the wrong people or too few of the right people respond.

Pitfalls of using nonprobability samples over probability samples

Companies have also tried to cut marketing research costs by substituting nonprobability for probability samples.  Respondents in a nonprobability sample are chosen solely on the basis of judgment, unlike probability samples, which are chosen at random with each member of the population having an equal chance of selection.  When someone at a shopping mall or on the street asks you to take a survey, you’re being selected for a nonprobability sample. 

There is nothing wrong with using nonprobability samples; surveys using such samples can be executed rather quickly if time is an issue.  Furthermore, researching populations that are quite small and scattered (e.g., recruiting persons with a rare disease for a clinical trial) or where few published directories – the sample frame – about its members exists (e.g., medical coding professionals), can make probability sampling cost-prohibitive and unfeasible.  However, generalizing results from a survey administered to a nonprobability sample to the true population can be difficult and highly error prone.  As long as you understand this drawback and make allowances for it, you will be OK.

Pitfalls of using smaller sample sizes

Sample size is another popular way companies attempt to cut marketing research costs.  Assume that a local pizzeria wants to explore the feasibility of offering delivery.  The pizzeria needs to estimate the amount a household within its ZIP code spends on a typical pizza delivery order, and randomly selects 100 households from within the ZIP code for a survey.  Further assume the pizzeria wants a five percent margin of error.  The survey is executed and the pizzeria finds that the average household surveyed spends $15 on a pizza delivery.  Figure in the plus or minus five percent, and the estimated average is between $14.25 and $15.75.

The problem emerges when the pizzeria tries to generalize this average delivery order to all households within that ZIP code.  A sample size of 100 with a five percent margin of error is barely a 65% confidence interval.  That means the pizzeria can be only 65% confident that the true average pizza delivery order in that ZIP code is between $14.25 and $15.75.  If the pizzeria concludes that that order size is too small to justify offering delivery, but the true average turns out to be well above that range, the pizzeria has left money on the table.  On the other hand, if the pizzeria concludes that the order size is large enough to justify offering delivery, but the true average falls below that range, it risks adding an unprofitable service.

The optimal sample size is the one that gives you the highest level of confidence and the most tolerable error margin required for you to make an objective marketing decision.

How to keep marketing research costs low while keeping quality high

When it comes to getting the most bang for your research buck, use the Pareto Principle as a starting point.  The Pareto Principle, also known as the 80/20 rule, states that about 80% of your results will come from roughly 20% of your efforts.  So, 80% of the information you need to make your decision will come from just 20% of the research questions you ask.  Find out what those questions are and be sure they are asked.  This process alone will help optimize the scope and cost of your research project.

Also, decide how much confidence you need and how much error you’ll tolerate.  Some decisions require more accuracy and/or confidence than others.  But your sample size changes in proportion to these accuracy and confidence needs.  The best way to start is by asking, “How much precision would I gain using a 95% vs. 90% confidence interval, and would that precision justify the extra cost to get it?”  A 95% confidence interval with a five percent error margin requires a sample of 384 people, while a 90% confidence interval with the same margin of error requires a sample of just 271.  Surveying those additional 113 people can add a couple thousand dollars to the cost of your project.  Is the gain in precision worth that additional cost?

Also, does your project really need a probability sample?  Not every research project does.  If the purpose of your research is exploratory, you generally need neither a large sample nor a randomly generated sample.  If you sell healthy meal solutions and want to understand issues busy moms face when trying preparing to prepare healthy meals for their children, you might simply run an ad in a local paper to recruit maybe 10 or 15 of those moms to either participate in a focus group or an in-depth interview.  This qualitative information can be sufficient on its own, or can lay the groundwork for a future larger, quantitative (not to mention probability sample) study.

Thoroughly understanding your business problem will give you the best idea of the scope your research requires, the precision you need, and the money you should budget.  If, after determining the necessary scope and precision, you find that the project is going to be prohibitively expensive, you can do one of two things.  One alternative is to look at all the information you are seeking to collect.  Then prioritize them in terms of their benefit to your marketing objectives.  Those parts of the research project that will add the most value should be undertaken; the remainder can be delayed until funds or time are available.  The other alternative is to do a cost-benefit analysis of the entire study.  If you had only $20,000 budgeted for the study, but you find it will cost you $35,000, weigh that cost against the value of the insights.  If, after the study, you are able to make decisions that increase sales – or reduce marketing costs – by more than $35,000, then it makes sense to make the case for more funding.

The expression, “you get what you pay for” rings especially true for marketing research.

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Don’t Pick the Wrong Marketing Research Firm!

October 9, 2009

Often, companies decide to hire a marketing research supplier when they either lack the expertise, time, or personnel to conduct the project internally, or the business problem has serious political consequences within the organization, requiring research to be performed by an objective third-party. Especially in the latter case, hiring the right marketing research vendor is crucial.

Some companies, when having to hire a marketing research firm for the first time, select the first one they find or hear about, whether or not it has expertise in the type of research they need. At the other extreme, some companies that have worked extensively with outside marketing research firms may become “lazy” and select a firm simply out of familiarity, regardless of its experience in the type of research needed.

Another pitfall is hiring a marketing research firm solely on the basis of cost. You get what you pay for. If the amount a supplier bids for your business comes in much lower than most other bids submitted, beware! It’s very likely the scope of the project outlined in that supplier’s proposal is much smaller than in those submitted by other suppliers. The much lower bid can also suggest that that supplier may be inexperienced in the type of research you need. Hiring an inexperienced research supplier can cost you time due to mistakes and rework, and produce results you can’t do anything with.

Some companies also hire a marketing research firm solely on the basis of reputation or size. While all of us would certainly love to have a big name marketing research firm executing our research project, it’s not always practical. These firms will charge a premium because of their specialized expertise. In addition, their large size almost always means more bureaucracy and higher cost structures, and therefore higher fees. And the larger the vendor, the greater likelihood your point of contact will be an account manager, and not the actual researcher. And if they judge the scope of your project to be too small, these firms might actually turn you away.

Selecting the right research vendor for your project
If you have a market monitoring system in place, and you’ve established the need for marketing research and properly defined your business problem, selecting the right research vendor is pretty straightforward. You’ll know at this point the type of research you need, and you’ll be able to shop more intelligently for a research vendor. Quirk’s Marketing Research Review Magazine and the American Marketing Association’s Marketing News each publish directories of various research suppliers and their areas of expertise. Knowing what you need from a vendor, you can call on prospective vendors you find from these sources and solicit bids. Also, reach out to your network and ask for referrals.

Just to clarify, there is absolutely nothing wrong with accepting the lowest bid on a research project, as long as the vendor is experienced in the type of research you need, and the scope the vendor proposes matches that scope you require. After all, why pay extra for additional information you won’t use?

Make Sure Your Marketing Research Efforts Have an “Owner”

October 8, 2009

When conducting marketing research, whether in-house or using an external marketing research firm, companies should assign responsibility for the research project to someone internally. Frequently, nobody owns the marketing research role, dooming the research project from the beginning. No designated owner ensures that research won’t be taken seriously relative to the employees’ other responsibilities; it almost guarantees that problem definition and project execution will be inadequate; it allows everyone to evade accountability; and it can lead to duplication of effort, as many departments may commission their own research.

 The duplication of research efforts is arguably the most expensive result of not having a dedicated research owner, and the obvious waste of time and money is not the half of it. Imagine this scenario: The marketing department wants to measure customer satisfaction and the customer service department wants to understand what is driving customer complaints and explore ways to reduce them. If the departments don’t consult each other and each conducts its own survey, it’s very likely they will be calling on the same customers and asking similar questions. Now imagine you, as the customer, receiving both surveys. What opinions do you form about this company?

The moral: Assign the research role to a qualified internal person, who is charged with communicating with the different departments and outside research vendors and maintaining your industry and market monitoring system.

Are You Doing Marketing Research for the Right Reasons?

October 5, 2009

Companies that fail to define their business problem or conduct unnecessary marketing research ultimately end up doing marketing research for the wrong reasons.  You will know if your company is performing marketing research for the wrong reasons if you ask why it’s being done and you hear any of the following:

“We’ve always done this research.” (The research has taken on a life of its own; this particular project has continued for years and nobody questioned whether it was still relevant.)

“Everyone’s doing this research.” (Their competitors are doing it, and they’re afraid they’ll lose competitive advantage if they don’t; yet no one asks what value the research is creating.)

 “The findings are nice to know.” (Great – spend a lot of money to create a wealth of useless information!  If the information is nice to know, but you can’t do anything with it, you’re wasting money.)

“If our strategy fails, having done the research will show that we made our best educated guess.” (They’re covering their butts.  If things go wrong, they can blame the findings, or the researcher.  But if the research process was flawed from the get-go, they didn’t make their best educated guess after all.)

“We need to study the problem thoroughly before we decide on a course of action.” (They’re afraid of making a tough decision.  Conducting marketing research is a good way to delay the inevitable.  In the meantime, the problem gets bigger, or the window of opportunity closes.  How much is “thoroughly?”  How much information do you need?)

“The research will show that our latest ad campaign was effective.” (They’re using marketing research to justify past decisions.  Rarely should marketing research be done after the fact.  Research mechanisms should be proactive; they should be built into all marketing efforts so that their success can be tracked objectively and thoroughly as they progress.)

The Right Reasons for Doing Marketing Research

You know you’re doing marketing research for the right reasons when:

  1. It enables you to make strategic decisions about your product, pricing, promotion, or positioning;
  2. It gives you necessary information you cannot get from any other source, so that you can make a critical decision;
  3. It helps you attack the root problem of the symptoms your company is experiencing; and
  4. It leads you to a course of action resulting in significant, positive outcomes for your company.

When NOT to do Marketing Research

October 2, 2009

Marketing research is an important part of a company’s decision making process.  However, there are times to do marketing research and times not to.  When marketing research keeps you on top of the markets in which your company operates; helps you achieve a strategic marketing advantage; enables you to select the course of action that achieves your key marketing objectives; or clarifies problems or investigates marketplace trends that affect your marketing goals, you should, by all means, conduct it.

However, there are certain times when you should NOT conduct marketing research.  First and foremost, you should not do marketing research if you have not first defined the problem you need to solve.  Problem definition is the single most important step in the marketing research process.  If not done – or done correctly – any research performed will be useless.  Granted, sometimes companies have no idea what the marketing problem is, so they must then do exploratory research, to help them identify the problem.  In that instance, there is a business problem, and that is to determine what is causing the company’s current marketing situation.

You probably also don’t need marketing research if:

You have access to readily available marketing information     

Your sales force may know its territories very well and each sales representative may understand the environment in which he or she calls on.  They may know the price of the competition’s products in those markets, as well as the relevant competitors there, and how much it costs to acquire customers there.  In addition, the Internet has made all kinds of marketing information freely available, and data sources like Dun & Bradstreet’s Million Dollar Database or ABI’s ReferenceUSA  has made finding information about prospective competition and customers a snap.  As a result, secondary research may be all you need to do to find the solutions to your marketing problems.

There’s not enough time or resources to conduct marketing research

If time is an issue, conducting elaborate marketing research will do no good.  Sometimes a situation arises where a decision must be made quickly.  In such a case, you might be better off convening the company’s business experts for an urgent discussion of the situation, alternative courses of action, and the selection of the course to take.  In other instances, you may lack the financial resources, or the internal staff for proper marketing research.  In these cases, you may also rely on the business experts and the secondary research already available to you.

The research adds little or no value

If the decision you want marketing research to help you make has little impact on sales, profit, market share, customer loyalty, brand equity, or any other marketing performance indicator, then it makes no sense to do marketing research.  Marketing research can be costly both in terms of time and money, so if the benefit of the research doesn’t at least pay for itself in the dollars and manpower expended to conduct it, it’s worthless.  You also need to consider the opportunity costs of that research.  If you do research on a problem whose solution adds little value, the time and money could have been better used to research a different problem with a bigger payoff, and that opportunity is lost.

Knowing when you need to do marketing research 

Develop an internal monitoring system of your marketing environment.  If you have a system in place to compile information about your company and your competition, it will alert top management to problems that marketing research can attack.  These days, you can set up e-mail alerts with Google and many major newspapers to keep you informed of any news or blog posts about your company, your competition, and your industry.   Also read your industry’s trade publications and get out to trade shows and conferences.  Talk to your sales force, your suppliers, and your customers.  You can get a wealth of information for free from these sources.

Knowing when not to do marketing research is just as important as knowing when to do it.  When marketing research adds significant value or improves your competitive position, it’s a go; when marketing research is just “nice to know,” it’s a no!