Market research - introduction

To undertake marketing effectively, businesses need information. Information about customer wants, market demand, competitors, distribution channels etc. Marketers often complain that they lack enough marketing information or the right kind, or have too much of the wrong kind. The solution is an effective marketing information system. The information needed by marketing managers comes from three main sources: (1) Internal company information E.g. sales, orders, customer profiles, stocks, customer service reports etc) (2) Marketing intelligence This can be information gathered from many sources, including suppliers, customers, distributors. Marketing intelligence is a catch all term to include all the everyday information about developments in the market that helps a business prepare and ad!ust its marketing plans. It is possible to buy intelligence information from outside suppliers "e.g. Mintel, #un $ %radstreet, Mori) who set up data gathering systems to support commercial intelligence products that can be profitably sold to all players in a market. (3) Market research Management cannot always wait for information to arrive in bits and pieces from internal sources. &lso, sources of market intelligence cannot always be relied upon to provide relevant or up to date information "particularly for smaller or niche market segments). In such circumstances, businesses often need to undertake specific studies to support their marketing strategy this is market research.

Conducting market research

#epending on the situation facing a business, particularly the resources allocated to marketing research, there are four main ways of carrying out market research: (1) Do it yourself - personally This is often the case in smaller businesses. 'ere, marketing staff do the research themselves. (ample si)es tend to be small which may be appropriate if there are a relatively small number of customers. (2) Do it yourself - using a marketing research department %y employing a marketing research manager, a business may benefit from specialist research skills. (3) Do it yourself - using a fieldwork agency *ften the design of a piece of market research can be completed using internal resources particularly if the business employs a marketing specialist with knowledge of research techni+ues. 'owever, the scope of the research "for e,ample, interviewing a large sample of

Prof. Uma Sankar Mishra, Asst. Professor, IBCS, SOA University, Bhubaneswar

consumers in various locations) may be beyond the resources of a business. In this case, the fieldwork can be carried out by a marketing research agency. (4) se the full ser!ices of a marketing research agency -here resources permit a business can invest in the full range of skills offered by marketing research agencies. & complete service would include: . /reparation of the market research proposal "survey design, costs, timetable, method of feedback) . 0onduct e,ploratory research . #esign the research +uestionnaire . (elect the sample . 0hoose the survey method "e.g. telephone, postal, face to face)1 . 0onduct the interviewing . &nalyse and interpret the results . /repare a report . Make a presentation There are thousands of market research agencies in the 23 alone who provide such services.

Ty p e s o f m a r k e t r e s e a r c h
The main distinction between the different types of market research is between "ad-hoc" and "continuous" research: Ad-hoc Market Research &d hoc research studies focus on specific marketing problems. They collect data at one point in time from one sample of respondents. 4ood e,amples of ad hoc studies include: . /roduct usage survey . 5ew product concept tests "where consumers are asked to trial new brands, product prototypes etc) . &dvertising development "how does the sample of consumers respond to a specific advertising campaign6 Most T7 adverts are researched in this way) . 0orporate image surveys "often +uite enlightening) . 0ustomer satisfaction surveys "these can often turn into continuous research) Continuous Research 0ontinuous studies interview the same sample of people, repeatedly. The ma!or types of continuous research are:

"onsumer panels

Prof. Uma Sankar Mishra, Asst. Professor, IBCS, SOA University, Bhubaneswar

0onsumer panels are formed by recruiting large numbers of households who provide information on their buying over time. 8esearch agency &0 5ielsen has one of the largest consumer panels in the world, continuously interviewing 9:;,<<< households in 9= countries. The main competitor for &0 5ielsen is T5( which runs panels in :< countries. #etail $udits %y gaining the cooperation of retail outlets, sales of brands can be measured "using bar coded sales data) to track changes in brand loyalty, market share and effectiveness of different retail formats. %ele!ision &iewer ship ' #adio (istening )anels

These pane s aim to measure !iewer ship or istenin" minute by minute. This #ata is $riti$a information for broa#$asters to #etermine their pro"ramme strate"y %what kin#s of pro"rammes to pro#u$e an# when to broa#$ast them& as we as for a#vertisers %who is wat$hin", istenin", an# when'&. In the U(, the main sour$e of su$h #ata is pro#u$e# by the Broa#$asters) Au#ien$e *esear$h Boar# %+BA*B+&.

Market research - uses

& wide variety of information used to support marketing decisions can be obtained from market research. & selection of such uses are summarised below: Information about the market . &nalysis of the market potential for e,isting products "e.g. market si)e, growth, changing sales trends) . >orecasting future demand for e,isting products . &ssessing the potential for new products . (tudy of market trends . &nalysis of competitor behaviour and performance . &nalysis of market shares Information about Products . . . . . ?ikely customer acceptance "or re!ection) of new products 0omparison of e,isting products in the market "e.g. price, features, costs, distribution) >orecasting new uses for e,isting products Technologies that may threaten e,isting products 5ew product development

Information about Pricing in the Market . . . . Estimates and testing of price elasticity &nalysis of revenues, margins and profits 0ustomer perceptions of @!ust or fairA pricing 0ompetitor pricing strategies

Information about Promotion in the Market

Prof. Uma Sankar Mishra, Asst. Professor, IBCS, SOA University, Bhubaneswar

. . . .

Effectiveness of advertising Effectiveness of sales force "personal selling) E,tent and effectiveness of sales promotional activities 0ompetitor promotional strategies

Information about Distribution in the Market . . . . 2se and effectiveness of distribution channels *pportunities to sell direct 0ost of transporting and warehousing products ?evel and +uality of after sales service

Sa es forecasting
Introduction (ales forecasting is a difficult area of management. Most managers believe they are good at forecasting. 'owever, forecasts made usually turn out to be wrongB Marketers argue about whether sales forecasting is a science or an art. The short answer is that it is a bit of both. Reasons for undertaking sa es forecasts %usinesses are forced to look well ahead in order to plan their investments, launch new products, decide when to close or withdraw products and so on. The sales forecasting process is a critical one for most businesses. 3ey decisions that are derived from a sales forecast include: Employment levels re+uired /romotional mi, Investment in production capacity Types of forecasting There are two ma!or types of forecasting, which can be broadly described as macro and micro: Macro forecasting is concerned with forecasting markets in total. This is about determining the e,isting level of Market #emand and considering what will happen to market demand in the future. Micro forecasting is concerned with detailed unit sales forecasts. This is about determining a productCs market share in a particular industry and considering what will happen to that market share in the future. The selection of which type of forecasting to use depends on several factors: "9) The degree of accuracy re!uired D if the decisions that are to be made on the basis of the sales forecast have high risks attached to them, then it stands to reason that the forecast should be prepared as accurately as possible. 'owever, this involves more cost ":) The a"ai abi ity of data and information in some markets there is a wealth of available sales information "e.g. clothing retail, food retailing, holidays)E in others it is hard to find reliable, up to date information

Prof. Uma Sankar Mishra, Asst. Professor, IBCS, SOA University, Bhubaneswar

"F) The time hori#on that the sa es forecast is intended to co"er . >or e,ample, are we forecasting ne,t weeksC sales, or are we trying to forecast what will happen to the overall si)e of the market in the ne,t five years6 "G) The position of the products in its ife cyc e$ >or e,ample, for products at the @introductoryA stage of the product life cycle, less sales data and information may be available than for products at the @maturityA stage when time series can be a useful forecasting method. Creating the Sa es %orecast for a Product The first stage in creating the sales forecast is to estimate Market Demand$ #efinition: Market Demand for a product is the total !olume that would *e *ought *y a defined customer group+ in a defined geographical area+ in a defined time period+ in a gi!en marketing en!ironment, %his is sometimes referred to as the Market Demand "ur!e, >or e,ample, consider the 23 *verseas Mass Market /ackage 'oliday Industry. -hat is Market #emand6 2sing the definition above, market demand can be defined as: Defined Customer &roup' 0ustomers -ho %uy an &ir Inclusive /ackage 'oliday Defined &eographica Area' 0ustomers in the 23 Defined Time Period: & calendar year Defined Marketing (n"ironment' (trong consumer spending in the 23 but overseas holidays affected by concerns over international terrorism 8ecent data for the 23 *verseas Mass Market /ackage 'oliday market suggests that market demand can be calculated as follows: )umber of Customers in the *+' 9H.; million per calendar year A"erage Se ing Price per ,o iday' IG;< (stimate of market demand: IH.J billion "customers , average price) (tage two in the forecast is to estimate Company Demand 0ompany demand is the companyCs share of market demand. This can be e,pressed as a formula: Company Demand - Market Demand " Company.s Market Share >or e,ample, taking our package holiday market e,ampleE the company demand for >irst 0hoice 'olidays in this market can be calculated as follows: >irst 0hoice 'olidays #emand K IH.J billion , 9;L Market (hare K I9.: billion & companyCs share of market demand depends on how its products, services, prices, brands and so on are perceived relative to the competitors. &ll other things being e+ual, the companyCs market share will depend on the si)e and effectiveness of its marketing spending relative to competitors.

Prof. Uma Sankar Mishra, Asst. Professor, IBCS, SOA University, Bhubaneswar

(tep Three is then to develop the Sa es %orecast The (ales >orecast is the e,pected level of company sales based on a chosen marketing plan and an assumed marketing environment. 5ote that the (ales >orecast is not necessarily the same as a @sales targetA or a @sales budgetA. A sa es target "or goal) is set for the sales force as a way of defining and encouraging sales effort. (ales targets are often set some way higher than estimated sales to @stretchA the efforts of the sales force. A sa es budget is a more conservative estimate of the e,pected volume of sales. It is primarily used for making current purchasing, production and cash flow decisions. (ales budgets need to take into account the risks involved in sales forecasting. They are, therefore, generally set lower than the sales forecast. /btaining information on e0isting market demand &s a starting point for estimating market demand, a company needs to know the actual industry sales taking place in the market. This involves identifying its competitors and estimating their sales. &n industry trade association will often collect and publish "sometime only to members) total industry sales, although rarely listing individual company sales separately. %y using this information, each company can evaluate its performance against the whole market. This is an important piece of analysis. (ay, for e,ample, that 0ompany & has sales that are rising at 9<L per year. 'owever, it finds out that overall industry sales are rising by 9;L per year. This must mean that 0ompany & is losing market share D its relative standing in the industry. &nother way to estimate sales is to buy reports from a marketing research firm such as &0 5eilsen, Mintel etc. These are usually good sources of information for consumer markets D where retail sales can be tracked in great detail at the point of sale. (uch sources are less useful in industrial markets which usually rely on distributors. (stimating %uture Demand (o far we have identified how a company can determine the current position: Current Company Demand - Current Market Demand 0 Current Market Share 'ow can future market demand and company demand be forecast6 7ery few products or services lend themselves to easy forecasting . These tend to involve a product whose absolute level or trend of sales is fairly constant and where competition is either non e,istent "e.g. monopolies such as public utilities) or stable "pure oligopolies). In most markets, total demand and company demand are not stable D which makes good sales forecasting a critical success factor. & common method of preparing a sales forecast has three stages:

Prof. Uma Sankar Mishra, Asst. Professor, IBCS, SOA University, Bhubaneswar

123 Prepare a macroeconomic forecast D what will happen to overall economic activity in the relevant economies in which a product is to be sold. 143 Prepare an industry sa es forecast D what will happen to overall sales in an industry based on the issues that influence the macroeconomic forecastE 153 Prepare a company sa es forecast D based on what management e,pect to happen to the companyCs market share (ales forecasts can be based on three types of information: 123 6hat customers say about their intentions to continue buying products in the industry 143 6hat customers are actua y doing in the market 153 6hat customers ha"e done in the past in the market There are many market research businesses that undertake surveys of customer intentions D and sell this information to businesses that need the data for sales forecasting purposes. The value of a customer intention survey increases when there are a relatively small number of customers, the cost of reaching them is small, and they have clear intentions. &n alternative way of measuring customer intentions is to sample the opinions of the sales force or to consult industry e,perts Time Series Ana ysis Many businesses prepare their sales forecast on the basis of past sales. Time series analysis involves breaking past sales down into four components: "9) The trend: are sales growing, @flat liningA or in decline6 ":) (easonal or cyclical factors. (ales are affected by swings in general economic activity "e.g. increases in the disposable income of consumers may lead to increase in sales for products in a particular industry). (easonal and cyclical factors occur in a regular patternE "F) Erratic eventsE these include strikes, fashion fads, war scares and other disturbances to the market which need to be isolated from past sales data in order to be able to identify the more normal pattern of sales "G) 8esponses: the results of particular measures that have been taken to increase sales "e.g. a ma!or new advertising campaign) 2sing time series analysis to prepare an effective sales forecast re+uires management to:

Smooth out the errati$ fa$tors %e.". by usin" a movin" avera"e& A#,ust for seasona variation I#entify an# estimate the effe$t of spe$ifi$ marketin" responses

Prof. Uma Sankar Mishra, Asst. Professor, IBCS, SOA University, Bhubaneswar