Chapter 7:  Segmenting and Targeting Markets

Market Segmentation

The term market means different things to different people. We are all familiar with the supermarket, stock market, labor market, fish market, and the flea markets. All these types of markets share several characteristics. First, they are composed of people (consumer markets) or organizations (business markets). Second, these people or organizations have wants and needs that can be satisfied by particular product categories. Third, they have the ability to exchange their resources, usually money or credit, for desired products.

Market

In sum, a market is (1) people and organizations with (2) needs or wants and with (3) the ability and (4) willingness to buy. A group of people or an organization lacks any one of these characteristics is not a market.

Market Segment

Within a market, a market segment is a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. At one extreme, we can define every person and every organization in the world as a market segment because each is unique. At the other extreme, we can define the entire consumer market as one large market segment and the business market as another large segment. All people have some similar characteristics and needs, as do all organizations.

From a marketing perspective, market segments can be described as somewhere between the two extremes.

Market Segmentation

The process of dividing a market into meaningful, relatively similar, and identifiable segments or groups is called market segmentation. The purpose of market segmentation is to enable the marketer to tailor marketing mixes to meet the needs of one or more specific segments.

Exhibit 7.1, page 215, illustrates the concept of market segmentation. Each box represents a market consisting of seven persons. This market might vary as follows: one homogeneous market of seven people, a market consisting of seven individual segments, a market composed of two segments based on gender, a market composed of three age segments, or a market composed of five age and gender market segments. Age and gender and many other bases for segmenting markets are examined later in this chapter.

The Importance of Marketing Segmentation

Until the late 1960s, few firms practiced market segmentation. When they did, it was more likely a haphazard effort than a formal marketing strategy. Before 1960, for example, the Coca-Cola Company produced only one beverage and aimed it at the entire soft drink market. Today, Coca-Cola offers over a dozen different products to market segments based on diverse consumer preferences for flavors and calorie and caffeine content. Coca-Cola offers traditional soft drinks, energy drinks, (such as Power Ade), flavored teas, and fruit drinks (Fruitopia).

Marketing segmentation plays a key role in the marketing strategy of almost all successful organizations and is a powerful marketing tool fro several reasons. Most importantly, nearly all markets include groups of people or organizations with different product needs and wants more precisely. Because market segments differ in size and potential, segmentation helps decision makers more accurately define marketing objectives and better allocate resources. In turn, performance can be better evaluated when objectives are more precise.

Ann Taylor Stores Corporation has enjoyed long-term success in the fickle world of women’s fashion by focusing on working women in their thirties and forties. Women in this segment are pressed for time. At Ann Taylor they could not only find classic styles of clothing, they could also take advantage of the stores’ one-stop-wardrobe concept, which allows them to create a wardrobe with just a few purchases. Ann Taylor has developed an unusually loyal base of shoppers and is financially stronger than many of its rivals.

Criteria For Successful Segmentation

Marketers segment markets for three important reasons. First, segmentation enables marketers to identify groups of customers with similar needs and to analyze the characteristics and buying behavior of these groups. Second, segmentation provides marketers with information to help them design marketing mixes specifically matched with the characteristics and desires of one or more segments. Third, segmentation is consistent with the marketing concept of satisfying customer wants and needs while meeting the organization’s objectives.

To be useful, a segmentation scheme must produce segments that meet four basic criteria:

·        Substantiality: A segment must be large enough to warrant developing and maintaining a special marketing mix. This criterion does not necessarily mean that a segment must have many potential customers. Marketers of custom designed homes and business buildings, commercial airplanes, and large computer systems typically develop marketing programs tailored to each potential customer’s needs. In most cases, however, a market segment needs many potential customers to make commercial sense. In the 1980s, home banking failed because not enough people owned personal computers. Today a larger number of people own computers, and home banking is a growing industry.

·        Identifiability and measurability: Segments must be identifiable and their size measurable. Data about the population within geographic boundaries, the number of people in various age categories, and other social and demographic characteristics are often easy to get, and they provide fairly concrete measures of segment size. Suppose that a social service agency wants to identify segments by their readiness to participate in a drug and alcohol program or in prenatal care. Unless the agency can measure how many people are willing, indifferent, or unwilling to participate, it will have trouble gauging whether there are enough people to justify setting up the service.

·        Accessibility: The firm must be able to reach members of targeted segments with customized marketing mixes. Some market segments are hard to reach—for example, senior citizens (especially those with reading or hearing disabilities), individuals who don’t speak English, and the illiterate.

·        Responsiveness: As Exhibit 7.1 illustrates, markets can be segmented using any criteria that seem logical. However, unless one market segment responds to marketing mix differently from other segments, that segment need not be treated separately. For instance, if all customers are equally price-conscious about a product, there is no need to offer high-, medium-, and low-priced versions to different segments.

Bases for Segmenting Consumer Markets

Segmentation Bases (or Variables)

Marketers use segmentation bases, or variables, which are characteristics of individuals, groups, or organizations, to divide total market into segments. The choice of segmentation bases is crucial because an inappropriate segmentation strategy may lead to lost sales and missed profit opportunities. The key is to identify bases that will produce substantial, measurable, and accessible segments that exhibit different response patterns to marketing mixes.

Markets can be segmented using a single variable, such as age group, or several variables, such as age group, gender, and education. Although it is less precise, single-variable segmentation has the advantage of being simpler and easier to use than multiple-variable segmentation. The disadvantages of multiple segmentation are that it is often harder to use than single-variable segmentation; useable secondary data are less likely to be available; and as the number of segmentation bases increases, the size of individual segments decreases. Nevertheless, the current trend is toward using more rather than fewer variables to segment most markets. Multiple-variable segmentation is clearly more precise than single-variable segmentation.

Geographic Segmentation

Geographic segmentation refers to segmenting markets by region of the country or world, market size, market density, or climate. Market density means the number of people living within a unit of land, such as a census tract. Climate is commonly used for geographic segmentation because of its dramatic impact on residents’ needs and purchasing behavior. Snow blowers, water and snow skies, clothing, and air-conditioning and heating systems are products with varying appeal, depending on climate.

Consumer goods companies take a regional approach to marketing for four reasons. First many firms need to find new ways to generate sales because of sluggish and intensely competitive markets. Second, computerized checkout stations with scanners enable retailers to assess accurately which brands sell best in their region. Third, many packaged-goods manufacturers are introducing new regional brands intended to appeal to local preferences. Fourth, a more regional approach allows consumer goods companies to react more quickly to competition. For example, Cracker Barrel, a restaurant known in the South for home-style cooking, is altering its menu outside its core Southern market to reflect local tastes. Customers in upstate New York can order Reuben sandwiches, and those in Texas can get eggs with salsa. Miller Lite developed the “Miller Lite True to Texas” marketing program, a statewide campaign targeting Texas beer drinkers. [Geographic segmentation is not an appropriate segmentation base for my own.]

Demographic Segmentation

Marketers often segment markets on the basis of demographic information because it is widely available and often related to consumers’ buying and consuming behavior.

Demographic Segmentation

Some common bases of demographic segmentation are age, gender, income, ethnic background, and family life cycle. The discussion here provides some important information about the main demographic segments.

Age Segmentation

Attracting children is a popular strategy for many companies because they hope to instill brand loyalty early. Furthermore, children influence a great deal of family consumption. There are an estimated twenty-eight million children aged six to twelve in the United States. This generation of kids is computer literate, with 24 percent having on-line access at home, a number that is projected to double by the year 2002. A number of companies offer kid-centered Internet content to appeal to this group, including America Online with its Kids Only service, and Boston-based children’s on-line service called Junior Net.

“Generation Y” is thirty million strong. They spend $97.3 billion annually. About two-thirds of which goes toward clothing ($33 billion), entertainment ($21 billion), and personal care ($8.3 billion). Some of the biggest companies on the market, such as PepsiCo, Nike, and Levi Strauss have been struggling in their attempts to reach this market. On the other hand, Tommy Hilfiger, a clothing company, found a successful formula for attracting teens. Along with its traditional mass-media ads, it ran unusual promotions, from giving free clothing to teen stars on VH1 and MTV to having teen film stars appearing in Hilfiger ads. In addition, knowing its customers’ passion for computer games, it sponsored a Nintendo competition and installed Nintendo terminals in its stores. Generation Y consumers voted Hilfiger jeans their favorite brand in an American Express Company survey.

Other age segments are also appealing targets for markets. The forty-seven million consumers of Generation X have $125 billion in spending power. Volvo, a car that has been targeted to a family-oriented, safety-minded customer, is now also trying to attract members of Generation X. For example, a print ad that showed up in the premier issue of Talk magazine reads, “Volvo discovers life before babies.” The computer-literate Generation X-ers also are large and viable market for the Internet.

The baby boom generation, born between 1946 and 1964, comprises the largest age segment—about 30 percent of the entire U.S. population. Many in this group are approaching (or past) fifty years of age, and continuing to lead active, fully involved lifestyles. Traditionally, marketers have not explicitly targeted the fifty-plus segment. Gateway, a company that markets personal computers, targets what it calls “aging adventurers,” a group defined by an average age of fifty-five, with grown kids and annual incomes ranging from $50,000 to $75,000. Several Gateway TV ads were designed to directly appeal to this group.

Seniors (aged sixty-five and over) are especially attracted to companies that build relationships by taking the time to get to know them and their preferences. As an example, older customers say they prefer catalog shopping to retail outlets because of dissatisfaction with customer service at retail stores. In comparison, a mailing done to target Medicare supplement prospects that included Valentine cards to seniors received a very positive response.

As the senior segment grows, more companies are taking their needs into consideration. The pharmaceutical industry is stepping up its quest to design pill bottles with caps that are easier for seniors to open. For example, in the past two years, Searle has reviewed about two-dozen new bottle and cap prototypes. One design that has promise is the “Friendly and Safe” cap, which can be opened without the fingers having to squeeze the cap at all, and requires less than a quarter turn to open. Seniors also comprise a growing market for the Internet. ThirdAge Media Inc., a San Francisco company, offers a Web site geared toward empty nesters and retirees that includes customized email newsletters that are sent up to seventy thousand members weekly.

Gender Segmentation

Marketers of products such as clothing, cosmetics, personal care items, magazines, jewelry, and footwear commonly segment products by gender. Men aged eighteen to forty-nine are the segment most likely to purchase goods on-line. Many Internet companies have advertised to this group to build their brands and get exposure for their sites. However, brands that have traditionally been marketed to men, such as Gillette razors and Rogaine baldness remedy, are increasing their efforts to attract women. Sutherland Golf Inc. makes premium golf balls (which are mostly designed for men) that are designed for women. These balls compress more when hit to compensate for the fact that women generally have a slower swing than male golfers. Conversely, “women’s” products such as cosmetics, household products, and furniture are also being marketed to men.

Income Segmentation

Income is a popular demographic variable for segmenting markets because income level influences consumers’ wants and determines their buying power. Many markets are segmented by income, including the markets for housing, clothing, automobiles, and food. For example, value retailers such as Dollar General are drawing low- and fixed-income customers with easy access, small stores, and rock bottom pricing. WalMart, on the other hand, is moving away from its traditional rural and middle-income markets to targeting higher-income consumers in upscale areas. The retailer is spending more money on its stores, introducing more high-end merchandise, and upgrading apparel lines.

Ethnic Segmentation

Many companies are segmenting their markets by ethnicity. The three largest ethnic markets are the African-American, Hispanic-American, and Asian-American. These three groups collectively are projected to make up one-third of the country’s population by 2010, and have a combined buying power of more than a trillion dollars. Furthermore, minority populations are fast becoming the majority population in major markets. Minority customers may have differences from their white counterparts in their preferences. For example, for 53 percent of Hispanic-Americans and Asian-Americans, and 44 percent of African-Americans, customer service is the most important factor in choosing a phone company, verses 36 percent for whites. Meanwhile, whites are almost twice as likely to buy the lowest-price phone service as nonwhites….

Family Life-Cycle Segmentation

The demographic factors of gender, age, and income do not sufficiently explain why consumer buying behavior varies. Frequently, differences in consumption patterns among people of the same age and gender result from their being in different stages of the family life cycle.

Family Life Cycle (FLC)

The family life cycle is a series of stages determined by a combination of age, marital status, and the presence of children.

Exhibit 7.2 on page 222 illustrates both traditional and contemporary FLC patterns and shows how families’ needs, incomes, resources, and expenditures differ at each stage.

Exhibit 7.2: 

The horizontal flow shows the traditional family life-cycle. The lower part of the exhibit gives some of the characteristics and purchase patterns of families at each stage of the traditional life cycle. The exhibit also acknowledges that about half of all first marriages end in divorce. When the young married move into the young divorced stage, their consumption patterns often revert back to those of the young single stage of the cycle. About four out of five divorced persons remarry by middle age and reenter the traditional life cycle, as indicated by the “recycled flow” exhibit above.

Psychographic Segmentation

Age, gender, income, ethnicity, family life-cycle stage, and other demographic variables are usually helpful in developing segmentation strategies, but often they don’t paint the entire picture. Demographics provides the skeleton, but psychographics adds the meat to the bones.

Psychographic Segmentation

Psychographic segmentation is marketing on the basis of the following variables:

·        Personality: Personality reflects a person’s traits, attitudes, and habits. Porsche Cars North America understood well the demographics of the Porsche owner: a forty-something male college graduate earning over $200,000 per year. However, each research discovered that there were five personality types within this general demographic category that more effectively segmented Porsche buyers. Exhibit 7.3 on page 223 describes these five segments. Porsche refined its marketing as a result of the study and, after a previous seven-year slump, the company’s U.S. sales rose 48 percent.

·        Motives: Marketers of baby products and life insurance appeal to appeal to consumers’ emotional motives—namely, to care for their loved ones. Using appeals to economy, reliability, and dependability, carmakers like Subaru and Suzuki target customers with rational motives. Carmakers like Mercedes-Benz, Jaguar, and Cadillac appeal to customers with status-related motives.

·        Life Styles: Lifestyle segmentation divides people into groups according to the way they spend their time, the importance of the things around them, their beliefs, and socioeconomic characteristics such as income and education. For example, Harley-Davidson divides its customers into seven lifestyle segments from “cocky misfits” who are most likely to be arrogant troublemakers, to “laid-back camper types” committed to cycling and nature, to “classy capitalists” who have wealth and privilege.

·        Geodemographic: Geodemographic segmentation clusters potential customers into neighborhood lifestyle categories. It combines geographic, demographic, and lifestyle segmentations. Geodemographic segmentation help marketers develop marketing programs tailored to prospective buyers who live in small geographic regions, such as neighborhoods, or who have very specific lifestyle and demographic characteristics. Kraft General Foods plans to tailor different ads for different neighborhoods in the in the same region. For example, viewers in watching a cable show in a Hispanic neighborhood in Chicago see different ads during the same commercial breaks that would young, affluent professionals living in a different neighborhood.

Psychographic variables can be used individually in segment markets or can be combined with other variables to provide more detailed descriptions of market segments. One well-known combination approach offered by SRI International, is called VALS 2 (version 2 of SRI’s Values and Lifestyles program). VALS 2 categorizes U.S. consumers by their values, beliefs, and lifestyles rather than by traditional demographic segmentation variables. Many advertising agencies have used VALS segmentation to create effective promotion campaigns.

As Exhibit 7.4 on page 224 shows, the segments in VALS2 are classified on two dimensions: vertically by their resources and horizontally by their self-orientation. Resources include education, income, self-confidence, health, eagerness to buy, intelligence, and energy level. The resources dimension is a continuum ranging from minimal to abundant. Resources generally increase from adolescence through middle age and decrease with extreme age, depression, financial reverses, and physical or psychological impairment. In contrast, the self-orientation dimension classifies three different ways of buying:

Exhibit 7.4  VALS Dimensions

·        Beliefs or principles rather than feelings, events, or desire for approval guide principle-oriented consumers in their choices.

·        Other people’s actions, approval, and opinions strongly influence status-oriented consumers.

·        Action-oriented consumers are prompted by a desire for social or physical activity, variety, and risk.

Exhibit 7.5 describes the eight VALS2 psychographic segments. Using only the two key dimensions—resources and self orientation—VALS defines groups of adult consumers who have distinctive attitudes, behavior patterns, and decision-making styles.

Exhibit 7.5  VALS2 Psychographic Segments

Benefit Segmentation

Benefit segmentation is the process of grouping customers into market segments according to the benefits they seek from the product. Most types of market segmentation are based on the assumption that this variable and customers’ needs are related. Benefit segmentation is different because it groups potential customers on the basis of their needs or wants rather than some other characteristic, such as age or gender. The snack-food market, for example, can be divided into six benefit segments, as shown in Exhibit 7.6.

Exhibit 7.6  Lifestyle Segmentation of the Snack-Food Market

Customer profiles can be developed by examining demographic information associated with people seeking certain benefits. This information can be used to match marketing strategies with selected target markets. Proctor & Gamble Company introduced Pampers Rash Guard, a diaper designed to combat diaper rash. To attract time-pressed consumers, Tops Friendly Markets supermarket chain is building stores half the size of some existing ones, and they emphasize efficient shopping with features such as carry-out foods being located near the front of the store.

Usage-Rate Segmentation

Usage-rate segmentation divides a market by the amount of product bought or consumed. Categories vary with the product, but they are likely to include some combinations of the following: former users, potential users, first time users, light or irregular users, medium users, and heavy users. Segmenting by usage-rate enables marketers to focus their efforts on heavy users or to develop multiple marketing mixes aimed at different segments. Because heavy users often account for a sizable portion of all product sales, some marketers focus on the heavy-user segment.

80/20 Principle

The 80/20 principle holds that 20 percent of all consumers generate 80 percent of the demand. Although the percentages are not usually exact, the general idea often holds true. For example, in the fast-food industry, the heavy user accounts for only one of five fast-food patrons, but about 60 percent of all visits to fast-food restaurants. Using this definition, the heavy user (who is most often a single male) accounted for roughly $66 billion of the $110 billion the National Restaurant Association said was spent on fast-food in 1999.

Developing customers into heavy users is the goal behind many frequency/loyalty programs like the airlines’ frequent flyer programs. Many supermarkets have also designed loyalty programs that reward the heavy-user segment with deals available only to them, such as in-store coupon dispensing systems, loyalty card programs, and special price deals on selected merchandise.

The business market consists of four broad segments: producers, resellers, institutions, and government (for a detailed discussion of the characteristics of these segments, see Chapter 6). Whether marketers focus on only one or on all four of these segments, they are likely to find diversity among potential customers. Thus, further market segmentation offers just as many benefits to business marketers as it does to consumer product marketers. Business market segmentation variables can be classified into two major categories: macrosegmentation variables and microsegmentation variables.

Macrosegmentation

Macrosegmentation variables are used to divide business markets into segments according to the following general characteristics:

·        Geographic location: The demand for some business products varies considerably from one region to another. For instance, many computer hardware and software companies are located in the Silicon Valley region of California. Some markets tend to be regional because buyers prefer to purchase from local suppliers, and distant suppliers often have difficulty competing in terms of price and service. Therefore, firms that sell to geographically concentrated industries benefit by locating operations close to the market.

·        Customer type: Segmenting by customer type allows business marketers to tailor their marketing mixes to the unique needs of particular types of organizations or industries. Many companies are finding this form of segmentation to be quite effective. For example, The Home Depot, the largest do-it-yourself retail business in the United States, has targeted professional repair and remodeling contractors in addition to consumers.

·        Customer size: Volume of purchase (heavy, moderate, and light) is a commonly used business-to-business segmentation basis. Another is the buying organization’s size, which may affect its purchasing procedures, the types of quantities of products it needs, and its responses to different marketing mixes. Banks frequently offer different services, lines of credit, and overall attention to commercial customers based on their size.

·        Product use: Many products, especially raw materials like steel, wood, and petroleum, have diverse applications. How customers use a product may influence the amount they buy, their buying criteria, and their selection of vendors. For example, a producer of springs may have customers that use the product in applications as diverse as making machine tools, bicycles, surgical devices, office equipment, telephones, and missile systems.

Microsegmentation

Macrosegmentation often produces market segments that are too diverse for targeted marketing strategies. Thus, marketers often find it useful to divide macrosegments based on such variables as customer size or product use into smaller microsegments.

Microsegmentation

Microsegmentation is the process of dividing business markets into segments based on the characteristics of decision-making units within a macrosegment. Microsegmentation enables the marketer to more clearly identify market segments and more precisely define target markets. These are some of the typical microsegmentation variables.

·        Key purchasing criteria: Marketers can segment some business markets by ranking purchasing criteria such as product quality, prompt and reliable delivery, supplier reputation, technical support, and price. For example Atlas Corporation developed a commanding position in the industrial door market by providing customized products in just four weeks, which is much faster than the industry average of twelve to fifteen weeks. Atlas’s primary market is companies with an immediate need for customized doors.

·        Purchasing strategies: The purchasing strategies of buying organizations can shape microsegments. Two purchasing profiles that have been identified are satisficers and optimizers. Satisficers contact familiar suppliers and place the order with the first to satisfy product and delivery requirements. Optimizers consider numerous suppliers (both familiar and unfamiliar), solicit bids, and study all proposals carefully before selecting one. Recognizing satisfiers and optimizers is quite easy. A few key questions during a sales call, such as “Why do you buy product X for vendor A?,” usually produce answers that identify purchaser profiles.

·        Importance of purchase: Classifying business customers according to the significance they attach to the purchase of a product is especially appropriate when customers used the product differently. This approach is also appropriate when the purchase is considered routine by some customers but very important by others. For instance, a small entrepreneur would consider a laser printer a major capital purchase, but a large office would find it a normal expense.

·        Personal characteristics: The personal characteristics of purchase decision makers (their demographic characteristics, decision style, tolerance for risk, confidence level, job responsibilities, and so on) influence their buying behavior and thus offer a viable basis for segmenting some business markets. IBM computer buyers, for example, are sometimes characterized as being more risk averse than buyers of less expensive clones that perform essentially the same functions. In advertising, therefore IBM stresses its reputation for high quality and reliability.

Steps in Segmenting a Market

The purpose of market segmentation, in both consumer and business markets, is to identify marketing opportunities. Exhibit 7.7 traces the steps below in segmenting a market. Note that steps 5 and 6 are actually marketing activities that follow marketing segmentation (steps 1 through 4)

Exhibit 7.7  Steps in Segmenting a Market and Subsequent Activities

1.     Select a market or a product category for study: Define the overall market or product category to be studied. It may be a market in which the firm already competes, a new but related market or product category, or a totally new one. For instance, Anheuser-Bush closely examined the beer market before introducing Michelob Light and Bud Light. Anheuser-Bush also carefully studied the market for salty snacks before introducing the Eagle brand.

2.     Choose a basis or bases for segmenting the market. This step requires managerial insight, creativity, and marketing knowledge. There are no scientific procedures fro selecting segmentation variables. However, a successful segmentation scheme must produce segments that meet the four basic criteria discussed earlier in this chapter.

3.     Select segmentation descriptors: After choosing one or more bases, the marketer must select the segmentation descriptors. Descriptors identify the specific segmentation variables to use. For example, if a company selects demographics as a basis of segmentation, it may use age, occupation, and income as descriptors. A company that selects usage segmentation needs to decide whether to go after heavy users, nonusers, or light users.

4.     Profile and analyze segments: The profile should include the segments’ size, expected growth, purchase frequency, current brand usage, brand loyalty, and long-term sales and profit potential. This information can then be used to rank potential markets by profit opportunity, risk, consistency with organizational mission and objectives, and other factors important to the firm.

5.     Select target markets: Selecting target markets is not a part of but a natural outcome of the segmentation process. It is a major decision that influences and often directly determines the firm’s marketing mix. This topic is examined in greater detail later in this chapter.

6.     Design, implement, and maintain appropriate marketing mixes: The marketing mix has been described as product, distribution, promotion, and pricing strategies intended to bring about mutually satisfying exchange relationships with target markets. Chapters 9 through 18 explore these topics in detail.

Strategies for Selecting Target Markets

So far this chapter has focused on the market segmentation process, which is only the first step in deciding whom to approach about buying a product. The next task is to choose one or more target markets.

Target Market

A target market is a group of people or organizations for which an organization designs, implements, and maintains a marketing mix intended to meet the needs of that group, resulting in mutually satisfying exchanges. The three general strategies for selecting target markets—undifferentiated, concentrated, and multisegment targeting—are illustrated in Exhibit 7.8, page 230. Exhibit 7.9, page 231, illustrates the advantages and disadvantages of each targeting strategy.

Undifferentiated Targeting

A firm using an undifferentiated targeting strategy essentially adopts a mass market philosophy, viewing the market as one big market with not individual segments. The firm uses one marketing mix for the entire market. A firm that adopts an undifferentiated targeting strategy assumes that individual customers have similar needs that can be met with a common marketing mix.

The first firm in an industry sometimes uses an undifferentiated targeting strategy. With no competition, the firm may not need to tailor marketing mixes to the preferences of the market segments. Henry Ford’s famous quote about the Model T is a classic example of an undifferentiated targeting strategy: “They can have their car in any color they want, as long as it’s black.” At one time, Coca-Cola used this strategy with as single product and a single size of its familiar green bottle. Marketers of commodity products, such as flour and sugar, are also likely to use an undifferentiated targeting strategy.

One advantage of undifferentiated marketing is the potential for saving on production and marketing. Because only one item is produced, the firm should be able to achieve economies of mass production. Also, marketing costs may be lower when there is only one product to promote and a single channel of distribution. Too often, however, an undifferentiated strategy emerges by default rather than by design, reflecting a failure to consider the advantages of a segmented approach. The result is often sterile, unimaginative product offerings that have little appeal to anyone.

Another problem associated with undifferentiated targeting is that it makes the company more susceptible to competitive inroads. Hershey lost a big share of the candy market to Mars and other candy companies before it changed to a multisegment targeting strategy. Coca-Cola forfeited its position as the leading seller of cola drinks in supermarkets to Pepsi-Cola in the late 1950s, when Pepsi began offering several sizes of containers.

You might think a firm producing a standard product like toilet tissue would adopt an undifferentiated strategy. However, this market has industrial segments and consumer segments. Industrial buyers want an economical, single-ply product sold in boxes of a hundred rolls. The consumer market demands a more versatile product in smaller quantities. Within the consumer market, the product is differentiated with designer print or no print, cushioned or non-cushioned, and economically priced or luxury priced. Fort Howard Corporation, the market share leader in industrial toilet paper, does not even sell to the consumer market.

Concentrated Targeting Strategy

With a concentrated targeting strategy, a firm selects a market niche (one segment of a market) for targeting its marketing efforts. Because the firm is appealing to a single segment, it can concentrate on understanding the needs, motives, and satisfactions of that segment’s members and on developing and maintaining a highly specialized marketing mix. Some firms find that concentrating resources and meeting the needs of a narrowly defined market segment is more profitable than spreading resources over several different segments.

Small firms often adopt a concentrated targeting strategy to compete effectively with much larger firms. For example, Enterprise Rent-A-Car rose to number one in the car rental industry by catering to people with cars in the shop. They have now expanded into the airport rental market.

Some firms, on the other hand, use a concentrated strategy to establish a strong position in a desirable market segment. Porsche, for example, targets an upscale automobile market through “class appeal, not mass appeal.”

Concentrated targeting violates the old adage “Don’t put all your eggs in one basket.” If the chosen segment is too small or if it shrinks because of environmental changes, the firm may suffer negative consequences. For instance, Oshkosh B’ Gosh, Inc., was highly successful selling children’s clothing in the 1980s. It was so successful, however, that the children’s line came to define Oshkosh’s image to the extent that the company could not sell to anyone else. Attempts at marketing older children’s clothing, women’s casual clothes, and maternity wear were all abandonded. Recognizing that it was in the children’s wear business, the company expanded into products such as kids’ shoes, children’s eyewear, and plush toys.

A concentrated strategy can also be disastrous for a firm that is not successful in its narrowly defined target market. Before Proctor & Gamble introduced Head & Shoulders shampoo, several small firms were already selling antidandruff shampoos. Head & Shoulders was introduced with a large promotional campaign, and the new brand captured over half the market immediately. With a year, several of the firms that had been concentrating on this market segment went out of business.

Multisegment Targeting Strategy

A firm that chooses to serve two or more well-defined market segments and develops a distinct marketing mix for each has a multisegment targeting strategy. Stouffer’s, for example, offers gourmet entrees for one segment of the frozen dinner market and Lean Cuisine for another. Hershey offers premium candies like Golden Almond chocolate bars, packaged in gold foil, that are marketed to an adult audience. Another chocolate bar, called RSVP, is targeted towards consumers who crave the taste of Godiva chocolates at the price of a Hershey bar. Cosmetics companies seek to increase sales and market share by targeting multiple age and ethnic groups. Maybelline and Cover Girl, for example, market different lines to teenage women, young adult women, older women, and African-American women. Mattel targets multiple markets with its Barbie doll. To make Barbie relevant to older girls, the brand has a new logo, new packaging, and an expanded product line of books and trendy apparel. Other new items include an electronic Barbie scrapbook to keep voice-recorded secrets and activity sets for fingernails and make-your-own lip-gloss. To target preteen girls, the company is introducing Barbie dolls with strand of hair studded with rhinestones, street-fashion clothing, and a first ever Barbie bellybutton.

Sometimes organizations use different promotional appeals, rather than completely different marketing mixes, as the basis for a multisegment strategy. Beer marketers such as Adolph Coors and Anheuser Bush advertise and promote special events targeted toward African-American, Hispanic-American, and Asian-American market segments. The beverages and containers, however, do not differ by ethic market segment. [Perhaps different appeals to the purchaser and consumer, the parent and the child.]

Multisegment targeting offers many potential benefits to firms, including greater sales volume, higher profits, larger market share, and economies of scale in manufacturing and marketing. Yet is may also involve greater product design, production, promotion, inventory, marketing research, and management costs. Before deciding to use this strategy, firms should compare the benefits and costs of multisegment targeting to those of undifferentiated and concentrated targeting.

Cannibalism

Another potential cost of multisegment targeting is cannibalism, which occurs when sales of a new product cut into the sales of a firm’s existing products. However, in many cases companies prefer to steal sales from their own brands rather than lose sales to a competitor. Also, in today’s fast-paced world of Internet business, some companies are willing to cannibalize existing business to build new business. Bank One launched WingsBank.com as a freestanding all-Internet bank that would be free to poach Bank One’s customers. Likewise, the pet-supply chain Petsmart spun off its on-line venture, Petsmart.com, as a separate company.

Positioning

Positioning

The development of any marketing mix depends on positioning, a process that influences potential customers’ overall perception of a brand, product line, or organization in general.

Position

(Position is the place a product, brand, or group of products occupies in consumers’ minds relative to competing offerings.) Consumer goods marketers are particularly concerned with positioning. Proctor & Gamble, for example, markets eleven different laundry detergents, each with a unique position, as illustrated in Exhibit 7.10 on page 234.

Positioning assumes that consumers compare products on the basis of important features. Marketing efforts that emphasize irrelevant features are therefore likely to misfire. For example, Crystal Pepsi and a clear version of Coca-Cola’s Tab failed because consumers perceived the “clear” positioning as more of a marketing gimmick than a benefit. [Might the benefit be the key feature to exploit in positioning?]

Effective positioning requires assessing the positions occupied by competing products, determining the important dimensions underlying these positions, and choosing a position in the market where the organization’s marketing efforts will have the greatest impact. For example, Ford Motor Company is styling the new Taurus models with conventional lines and installing new high-tech protection features. They will position the Taurus as a safe, family sedan, based on marketing research that revealed consumers view safety as a top priority in automobiles.

Product Differentiation

As the previous example illustrates, product differentiation is a positioning strategy that many firms use to distinguish their products from those of competitors. The distinctions can either be real or perceived. Tandem Computer designed machines with two central processing units and two memories for computer systems that can never afford to down or lose their databases (for example, and airline reservation system). In this case, Tandem used product differentiation to create a product with very real advantages for the target market. However, many everyday products, such as bleaches, aspirin, unleaded regular gasoline, and some soaps, are differentiated by such trivial means as brand names, packaging, color, smell, or “secret” additives. The marketer attempts to convince consumers that a particular brand is distinctive and that they should demand it over competing brands.

Some firms, instead of using product differentiation, position their products as being similar to competing products or brands. Artificial sweeteners advertised as tasting like sugar or margarine tasting like butter are two examples.

Perceptual Mapping

Perceptual Mapping

Perceptual mapping is a means of displaying or graphing, in two or more dimensions, the location of products, brands or groups of products in customers’ minds. For example, after years of decreasing market share and the perception of teenagers that Levi’s were not “cool,” Levi Strauss has developed a number of youth-oriented fashions, ranging from oddly cut jeans to nylon pants that unzip into shorts. They have also introduced apparel appealing to adults by extending the Dockers and Slates casual-pants brands. The perceptual map in Exhibit 7.11 on page 236 shows Levi’s dozens of brands and subbrands, from cheap basics to high-priced fashion.

Positioning Bases

Firms use a variety of bases for positioning, including the following:

·        Attribute: A product is associated with an attribute, product feature, or customer benefit. Rockport shoes are positioned as an always comfortable brand that is available in a range of styles from working shoes to dress shoes.

·        Price and quality: This positioning base may stress high price as a signal of quality or emphasize low price as an indication of value. Neiman Marcus uses the high-priced strategy; Kmart has successfully followed the low-price and value strategy. The mass merchandiser Target has developed an interesting position based on price and quality. It is an “upscale discounter,” sticking to low prices but offering higher quality and design than most discount chains.

·        Use or application: AT&T telephone service advertising emphasized communicating with loved ones using the “Reach out and touch someone” campaign. Stressing uses or applications can be an effective means of positioning a product with buyers. Kahlua liquor uses advertising to point out 228 ways to consume the product.

·        Product user: This positioning base focuses on a personality or type of user. Zale Corporation has several jewelry store concepts, each positioned to a different user. The Zale stores cater to middle-of-the-road consumers with traditional styles. Their Gordon’s stores appeal to a slightly older clientele with a contemporary look. Guild is positioned for the more affluent fifty-plus consumer.

·        Competitor: Positioning against competitors is part of any positioning strategy. The Avis rental car positioning as number two exemplifies positioning against specific competitors.

It is not unusual for a marketer to use more than one of these bases. The AT&T “Reach out and touch someone” campaign that stressed use also emphasized the relatively low cost of long-distance calling. Mountain Dew positioned its soft drink to the youth market as a thirst-quenching drink that is associated with teens having fun outdoors.

Repositioning

Sometimes products or companies are repositioned in order to sustain growth in slow markets or to correct positioning mistakes. Repositioning is changing consumers’ perceptions of a brand in relation to competing brands. To cope with a stagnant liquor industry, a number of companies are attempting to reposition vodka, s spirit without taste, color, or aroma, as a fashion icon in a complex taste. Part of the repositioning effort includes prestige packaging and higher prices. The Kahlua advertising campaign described earlier was part of an attempt to reposition the brand by playing up its versatility and shifting its audience from those who thought of it as a desert type liquor to those who are choosy, fashionable social drinkers. The National Shooting Sports Foundation, a gun industry trade group, developed new advertising for guns that reposition them as sports equipment, with a focus on safety. The ads discuss the popularity and safety of shooting sports such as hunting and target practice.

Global Issues in Marketing Segmentation and Targeting

Chapter 4 discussed the trend toward global market standardization, which enables firms like Coca-Cola, Colgate-Palmolive, McDonald’s, and Nike to market similar products using similar marketing strategies in many different countries. This chapter has also discussed the trend toward targeting smaller, more precisely defined markets.

The tasks involved in segmenting markets, selecting markets, and designing, implementing, and maintaining appropriate marketing mixes (described in Exhibit 7.7) are the same whether the marketer has a local perspective or a global vision. The main difference is the segmentation variables commonly used. Countries are commonly grouped using such variables as per capita gross domestic product, geography, religion, culture, or political system.

Some firms have tried to group countries or customer segments around the world using lifestyle or psychographic variables. So-called “Asian yuppies” in places like Singapore, Hong Kong, Japan, and South Korea have substantial spending power and exhibit purchase and consumption behavior similar to that of their better-known counterparts in the United States. In this case, firms may be able to use a global market standardization approach.

Recall from Chapter 4 that Metabolife International has introduced a line of Chinese herb formulas that were designed to treat five common ailments, such as the common cold and upset stomach. The line called Chinac, is being marketed to both American and Chinese consumers. For Americans, Chinac offers an easy way to access what is for most consumers an unfamiliar field of medicine. For Chinese, Chinac may offer a welcome change to the numerous and confusing choices they face in a traditional Chinese pharmacy.

Summary

1.                 Describe the characteristics of markets and market segments. A market is composed of individuals or organizations with the ability and willingness to make purchases to fulfill their needs or wants. A market segment is a group of individuals or organizations with similar product needs as a result of one or more common characteristics.

2.                 Explain the importance of market segmentation. Before the 1960s, few businesses targeted specific market segments. Today, segmentation is a critical marketing strategy for nearly all successful organizations. Market segmentation enables marketers to tailor marketing mixes to meet the needs of particular population segments. Segmentation helps marketers identify consumer needs and preferences, areas of declining demand, and new marketing opportunities.

3.                 Discuss criteria for successful market segmentation. Successful marketing segmentation depends on four basic criteria: (1) a market segment must be identifiable and measurable; (3) members of a market segment must be accessible to marketing efforts; and (4) a market segment must respond to particular marketing efforts in a way that distinguishes it from other segments.

4.                 Describe the bases commonly used to segment consumer markets. There are five commonly used bases for segmenting consumer markets. Geographic segmentation is based on region size, density, and climate characteristics. Demographic segmentation consists of age, gender, income level, ethnicity, and family life-cycle characteristics. Psychographic segmentation includes personality, motives, and lifestyle characteristics. Benefits sought are a type of segmentation that identifies customers according to the benefits they seek in a product. Finally, usage segmentation divides a market by the amount of product purchased or consumed.

5.                 Describe the basis for segmenting business markets. Business markets can be segmented on two bases. First, macrosegmentation divides markets according to general characteristics, such as location and consumer type. Second, microsegmentation focuses on the decision-making units with the macrosegments.

6.                 List the steps involved in segmenting markets. Six steps are involved when segmenting markets: (1) Selecting a market or product category for study; (2) choosing a basis or bases for segmenting a market; (3) selecting segmentation descriptors; (4) profiling and evaluating segments; (5) selecting target markets; and (6) designing, implementing, and maintaining appropriate marketing mixes.

7.                 Discuss alternative strategies for selecting target markets. Marketers select target markets using three different strategies: undifferentiated targeting, concentrated targeting, and multisegment targeting. An undifferentiated targeting strategy assumes that all members of a market have similar needs that can be met with a single marketing mix. A concentrated targeting strategy focuses all marketing efforts on a single market segment. Multisegment targeting is a strategy  that uses two or more  marketing mixes to target two or more market segments.

8.                 Explain how and why firms implement positioning strategies and how product differentiation plays a role. Positioning is used to influence consumer perceptions of a particular brand, product line, or organization in relation to competitors. The term position refers to the place that the offering occupies in the consumers’ minds. To establish a unique position, many firms use product differentiation, emphasizing the real or perceived differences between competing offerings. Products may be differentiated on the basis of attribute, price, and quality, use or application, product user, product class, or competitor.

9.                 Discuss global market segmentation and targeting issues. The key tasks in market segmentation, targeting, and positioning are the same regardless of whether the target market is local, regional, national, or multinational. The main differences are the variables used by marketers in analyzing markets and assessing opportunities and the resources needed to implement strategies. [It can’t be as simple as that, however.]

Chapter 8:  Decision Support Systems And Marketing Research

Accurate and timely information is the lifeblood of marketing decision making. Good information can help maximize an organization’s sales and efficiently use scarce company resources.

Marketing Information

To prepare and adjust marketing plans, managers need a system for gathering everyday information about developments in the marketing environment—that is, for gathering marketing information. The system most commonly used these days for gathering marketing information is called marketing decision support systems.

Decision Support Systems (DSS)

A marketing decision support system (DSS) is an interactive, flexible computerized information system that enables managers to obtain and manipulate information as they are making decisions. A DSS bypasses the information processing specialist and gives managers access to useful data from their own desks.

These are the characteristics of a true DSS:

·        Interactive: Managers give simple instructions and see immediate results. The process is under their direct control; no computer programmer is needed. Managers don’t have to wait for scheduled reports.

·        Flexible: A DSS can sort, regroup, total, average, and manipulate the data in various ways. It will shift gears as the user changes topics, matching information to the problem at hand. For example, the CEO can see highly aggregated figures, and the marketing analyst can view very detailed breakouts.

·        Discovery oriented: Managers can probe for trends, isolate problems, and ask “what if” questions.

·        Accessible: DSS is easy to learn and use by managers who aren’t skilled with computers. Novice users should be able to choose a standard, or default method of using the system. They can bypass optional features so they can work with the basic system right away while gradually learning to apply its advanced features.

Database Marketing

….Perhaps the fastest-growing use of DSS is for database marketing, which is the creation of a large computerized file of customers’ and potential customers’ profiles and purchase patterns. It is usually the key tool for successful micromarketing, which relies heavily on very specific information about a market (see Chapter 20).

Marketing Research

Marketing research is the process of planning, collecting, and analyzing data relevant to a marketing decision. The results of this analysis are then communicated to management. Marketing research plays a key role in the marketing system. It provides decision makers with data on the effectiveness of the current marketing mix and also insights for necessary changes. Furthermore, marketing research is a main data source for both management information systems and DSS.

Descriptive, Diagnostic, and Predictive Roles

Market research has three roles: descriptive, diagnostic, and predictive. Its descriptive role includes gathering and presenting factual statements. For example, what is the historic sales trend in the industry? What are the consumers’ attitudes toward a product and its advertising? Its diagnostic role includes explaining data. For instance, what was the impact on sales of a change in design of the package? Its predictive function is to address “what if” questions. For example, how can the researcher use the descriptive and diagnostic research to predict the results of a planned marketing decision?

Management Uses of Marketing Research

Marketing research can help managers in several ways. It improves the quality of decision making and helps managers trace problems. Most important, sound marketing research helps managers focus on the paramount importance of keeping existing customers, aids them to better understand the marketplace, and alerts them to marketplace trends. Marketing research helps managers gauge the perceived value of their goods and services as well as the level of customer satisfaction.

Improving the Quality of Decision Making

Managers can sharpen their decision making by using marketing research to explore the desirability of various marketing alternatives. For example, Ford Motor Company has used marketing research to create an aggressive e-commerce marketing strategy. Ford set up the Buyer Connection Web site and joined MSN Car Point site where customers can order custom-assembled cars, track their progress, and apply for financing. Ford’s Owner-Connection sites lets owners get on-line help, manage their warranty service, and check on financing. The company is also teaming up with Yahoo!, TeleTech, CarPoint, iVillage, and bolt.com to conduct research on consumer auto interests and buying patterns of Web-surfing customers. For has seen the Internet as an opportunity, not a threat.

Tracing Problems

Another way managers use marketing research is to find out why a plan backfires. Was the initial decision correct? Did an unforeseen change in the external environment cause the plan to fail? How can the same mistake be avoided in the future?

Focusing on the Paramount Importance of Keeping Existing Customers

An inextricable links exists between customer satisfaction and customer loyalty. Long-term relationships simply don’t just happen but are grounded in the delivery of service and value by the firm. Customer retention pays big dividends for organizations. Powered by repeat sales and referrals, revenues and market share grow. Costs fall because firms spend less money and energy attempting to replace defectors. Steady customers are easy to serve because they understand the modus operandi and make fewer demands on employees’ time. Increased customer retention also drives job satisfaction and pride, which leads to higher employee retention. In turn, the knowledge employees acquire as they stay longer increases productivity. A Bain & Company study estimates that a decrease in the customer defection rate by 5 percent can boost profits by 25 percent to 95 percent….

Understanding the Ever-Changing Marketplace

Marketing research also helps managers understand what is going on in the marketplace and take advantage of opportunities. Historically, marketing research has been practiced for as long as marketing has existed. The early Phoenicians carried out market demand studies as they traded in the various ports of the Mediterranean Sea. Marco Polo’s diary indicates he was performing a marketing research function as he traveled to China. There is even evidence that the Spanish systematically conducted “market surveys” as they explored the New World, and there are examples of marketing research conducted during the Renaissance….

Steps in a Marketing Research Project

Virtually all firms that have adopted the marketing concept engage in some marketing research because it offers decision makers many benefits. Some companies spend millions on marketing research; other’s, particularly small firms, conduct informal, limited scale research studies. For example, when Eurasia restaurant, serving Eurasian cuisine, first opened along Chicago’s ritzy Michigan Avenue, it drew novelty seekers. But it turned off the important business lunch crowd, and sales began to decline. The owner surveyed several hundred business people working within a mile of the restaurant. He found that they were confused by Eurasia’s concept and wanted more traditional Asian fare at lower prices. In response, the restaurant altered its concept; it hired a Thai chef, revamped the menu, and cut prices. The dining room was soon full again.

Whether the search project costs $200 or $2 million, the same general process should be followed. The marketing research process is a scientific approach to a decision making that maximizes the chance of getting accurate and meaningful results. Exhibit 8.1 traces these steps: (1) identifying and formulating the problem/opportunity, (2) planning the research design and gathering primary data, (3) specify the sampling procedures, (4) collecting data, (5) analyze the data, (6) preparing and presenting the report, and (7) following up.

The research process begins with the recognition of a marketing problem or opportunity. As changes occur in the firm’s external environment, marketing managers are faced with the questions, “Should we change the existing marketing mix?” and, if so, “How?” Marketing research may be used to evaluate product, promotion, distribution, or pricing alternatives. In addition, it is used to find and evaluate new market opportunities.

For example, there have been over seventeen million babies born in the United States since 1995. It is the largest generation since the baby boomers. More impressive than their numbers, though, is there wealth. The increase in single-parent and duel-earner households means kids are making shopping decisions once left to mom. Combining allowance, earnings, and gifts, kids fourteen and under will directly spend an estimated $20 billion this year, and they will influence the spending of another $200 billion.

For savvy marketers, these statistics represent opportunity. Marketing research can hone in and clarify where the best opportunities lie. Walt Disney, for example, is launching a twenty-four-hour kid’s radio network based on its marketing research. Sometimes research can lead to unexpected results requiring creative uses of the marketing mix. General Motors recently completed an analysis of “backseat consumers,” that is, children between the ages of five and fifteen. Marketing research discovered that parents often let their children play in a tie-breaking role in deciding what car to purchase. Marketing managers, armed with this information launched several programs. GM purchases the inside cover of Sports Illustrated for Kids, a magazine targeted to boys from eight to fourteen years old. The ad featured a brightly colored two-page spread for the Chevy Venture minivan, a vehicle targeted toward young families. GM also sent the minivan to malls and showed Disney movies on a VCR inside the van.

Marketing Research Problem

The GM story illustrates an important point about problem/opportunity definition. The marketing research problem is information oriented. It involves determining what information is needed and how that information can be obtained efficiently and effectively.

Market Research Objective

The market research objective, then, is to provide insightful decision making information. This requires specific pieces of information needed to answer the marketing research problem. Managers must combine this information with their own experience and other information to make a proper decision. In the GM scenario, the marketing research objective was to determine what role, if any, backseat consumers play in a family’s decision to purchase an automobile.

Management Decision Problem

In contrast, the management decision problem is action oriented. Management problems tend to be much broader in scope and far more general, whereas marketing research problems must be more narrowly defined and specific if the research effort is to be successful. Sometimes several research studies must be conducted to solve a broad management problem. Once GM determined that children within this target market played a tiebreaker role, the question became one of what should be done to influence the tie-breakers. GM used marketing research to determine that direct advertising to children in the target market and mall promotions would be the best form of promotion.

Secondary Data

A valuable tool throughout the research process but particularly in the problem/opportunity identification stage is secondary data—data previously collected for any purpose other than the one at hand. Secondary information originating within the company includes documents such as annual reports, reports to stockholders, product testing results perhaps made available to the news media, and house periodicals composed by the company’s personnel for communication to employees, customers, or others. Often this information is incorporated into a company’s internal database.

Innumerable outside sources of secondary information also exist, principally in the forms of government (federal, state, and local) departments and agencies that compile and publish summaries of business data. Trade and industry associations also provide published secondary data. Still more data are business periodicals and other news media that regularly publish studies and articles on the economy, specific industries, and even individual companies. The unpublished summarized secondary information from these sources corresponds to internal reports, memos, or special-purpose analysis with limited circulation. Economic considerations or priorities in the organization may preclude publication of these summaries. Most of the sources listed above can be found on the Internet.

Secondary data save time and money if they help solve the researcher’s problem. Even if the problem is not solved, secondary data have other advantages. They can aid in formulating the problem statement and suggest research methogs and other types of data needed for solving the problem. In addition, secondary data can pinpoint the kinds of people to approach and their locations and serve as a basis of comparison for other data. The disadvantages of secondary data stem mainly from a mismatch between the researcher’s unique problem and the purpose for which the secondary data were originally gathered, which are typically different. For example, a major consumer products manufacturer wanted to determine the market potential for a fireplace log made of coal rather than compressed wood byproducts. The researcher found plenty of secondary data about total wood consumed as fuel, quantities consumed in each state, and types of wood burned. Secondary data were also available about consumer attitudes and purchase patterns of wood byproduct fireplace logs. The wealth of secondary data provided the researcher with many insights into the artificial log market. Yet nowhere was there any information that would tell the firm whether consumers would buy artificial logs made from coal.

The quality of secondary data may also pose a problem. Often secondary data sources do not give detailed information that would enable a researcher to assess the quality or relevance. Whenever possible, a researcher needs to address these important questions: Who gathered the data? Why were the data obtained? What methodology was used? How were the classifications (such as heavy users verses light users) developed and refined? When was the information gathered?

The New Age of Secondary Information: The Internet

Gathering secondary data, while necessary in almost any research project, has traditionally been a tedious and boring job. The researcher often had to write to government agcncies, trade associations, or other secondary data providers and then wait days or weeks for a reply that might never come. Often, one or more trips to the library were required and the researcher might find that needd reports were checked out or missing. In the last few years the rapid development of the Internet and the World Wide Web promise to eliminate the drudgery associated with the collection of secondary data.

Finding Secondary Data on the Internet

If you know the address of a particular Web site that contains the secondary data that you are searching for, you can type a description of what you are looking for directly into your Web browser (Netscape Navigator or Microsoft Explorer are the dominant browsers). A Web address or URL (Uniform Resource Locator) is similar to a street address in that it identifies a particular location (Web server and file on that server) on the Web.

Search Engines

Sites such as Alta Vista, Excite, and Google have become popular web users looking for information on the Web. These organizations offer what re called search engines that scan the Web looking for sites on a designated topic. Each search engine uses its own indexing system to locate relevant information. All of them allow users to enter one or more keywords that will initiate a search of the databases of Web sites for all occurrences of those words. They then return listings that allow users to go immediately to the sites described.

Remember that the Internet is a self-publishing medium. Your visits to search engines will yield files with a wide range of quality from a variety of sources. Try out multiple sites when you are investigating a topic.

Directories

In addition to search engines, you can use subject directories on the Web to explore a subject. There are two basic types of directories: (1) academic and professional directories, often created and maintained by subject experts to support the needs of researchers, and (20 commercial portals, which cater to the general public and are competing for traffic. Directories depend upon people to compile their listings.

Academic and professional directories are created by librarians or subject experts and tend to be associated with libraries and academic institutions. These collections are created in order to enhance the research process and help users find high quality sites of interest. A careful selection process is applied, and links to the selected resources are usually annotated. These collections are often created to serve an institution’s constituency but may be useful to any researcher. As a rule, these sites do not generate income or carry advertising. INFOMINE, from the University of California, is an example of an academic directory.

Commercial Portals are created to generate income and serve the general public. These services link to a wide range of topics and often emphasize entertainment, commerce, hobbies, sports, travel, and other interests not necessarily covered by academic directories. These sites seek to draw traffic in order to support advertising. As part of this goal, the directory is offered in conjunction with a number of additional customer services. Yahoo! is an example of a commercial portal.

The lines between directories and search engines are blurring. Directories are present at some search engine sites, and sometimes their contents are searched along with content from the general Web. For example, Alta Vista offers the Look Smart directory; Infoseek shares the screen with the directory at the Go Network; Excite has its own directory; and Lycos offers the directory contents from the Netscape open directory. Directory results are sometimes placed before search results in order to steer users to the directories content. This can be a useful way of getting at substantive content relating to your query. Most subject directories offer a search engine mechanism to query the database. A list of popular search engines and directories is shown in Exhibit 8.2 on pages 256 and 257.

Periodical, Newspaper, and Book Databases

Several excellent periodical, newspaper, and book databases are available to researchers. Some can be directly accessed via the internet and others through your local library’s web site. A list of these databases is shown in Exhibit 8.4 on page 258.

Internet Discussion Groups and Special Internet Groups as Sources of Secondary Data

A primary means of communicating with other professionals and special interest groups on the Internet is through news groups. With an Internet connection and newsreader software, you can visit any newsgroup supported by your service provider. If your service provider does not offer newsgroups or doesn not carry the group in which you are interested, you can find one of the publicly available newsgroup servers that does carry the group you would like to read.

Newsgroups

Newsgroups function much like bulletin boards for a particular topic or interest. A newsgroup is established to focus on a particular topic. Readers stop by that newsgroup to read messages left by other people, post responses to others’ questions, and send rebuttals to comments with which they disagree. Generally, there is some management of the messages to keep discussion within the topic area and to remove offensive material.

Planning the Research Design and Gathering Primary Data

Good secondary data can help researchers conduct a thorough situation analysis. With that information, researchers can list their unanswered questions and rank them. Researchers must then decide the exact information required to answer the questions.

Research Design

The research design specifies which research questions must be answered, how and when the data will be gathered, and how the data will be analyzed. Typically, the project budget is finalized after the research design has been approved.

Sometimes research questions can be answered by gathering more secondary data; otherwise, primary data may be needed.

Primary Data

Primary data, or information collected for the first time, can be used for solving the particular problem under investigation. The main advantage of primary data is that they will answer a specific research question that secondary data cannot answer. For example, suppose Pillsbury has two new recipes for refrigerated dough for sugar cookies. Which one will consumers like better? Secondary data will not help answer this question. Instead, targeted customers must try each recipe and evaluate the tastes, textures, and appearances of each cookie. Moreover, primary data are current and researchers know the source. Sometimes the researchers gather the data themselves rather than assign projects to outside companies. Researchers also specify the methodology of the research. Secrecy can be maintained because the information is proprietary. In contrast, secondary data are available to all interested parties for relatively small fees.

Gathering primary data is expensive; costs range from a few thousand dollars for a limited survey to several million for a nationwide study. For instance, a nationwide, fifteen minute telephone interview with one thousand adult males can cost $50,000 for everything, including a data analysis and report. Because primary data gathering is so expensive, firms commonly cut back on the number of interviews to save money. Larger companies that conduct many research projects use another cost-saving technique. They piggyback studies, or gather data on two different projects using one questionnaire. The drawback is that answering questions about, say, dog food and gourmet coffee may be confusing to respondents. Piggybacking also requires a longer interview (sometimes a half hour or longer), which tires respondents. The quality of the answers typically declines, with people giving curt replies and thinking, “When will this end!” A lengthy interview also makes people less likely to participate in other research surveys.

However, the disadvantages of primary data gathering are usually offset by the advantages. It is often the only way of solving a research problem. And with a variety of techniques available for research—including surveys, observations, and experiments—primary research can address almost any marketing question.

Survey Research

The most popular technique for gathering primary data is survey research, in which a researcher interacts with people to obtain facts, opinions, and attitudes. Exhibit 8.5 summarizes the characteristics of traditional forms of research.

In-Home Personal Interviews

Although in-home, personal interviews often provide high-quality information, they tend to be very expensive because of the interviewer’s travel time and mileage costs. Therefore, they are rapidly disappearing from the marketing researcher’s survey toolbox.

Mall Intercept Interviews

The mall intercept interview is conducted in the common areas of shopping malls or in a market research office within the mall. It is the economy version of the door-to-door interview with personal contact between interviewer and respondent, minus the interviewer’s travel time and mileage costs. To conduct this type of interview, the research firm rents office space in the mall or pays a significant daily fee. One drawback is that it is hard to get a representative sample of the population.

However, an interviewer can also probe when necessary—a technique used to clarify a person’s response. For example, an interviewer might ask, “What did you like best about the salad dressing you just tried?” The respondent might reply, “Taste.” This answer doesn’t provide a lot of information, so the interviewer could probe by saying, “Can you tell me a little bit more about taste?” The respondent then elaborates: “Yes, it’s not too sweet, it has the right amount of pepper, and I love that hint of garlic.”

Mall intercept interviews must be brief. Only the shortest ones are conducted while respondents are standing. Usually researchers invite respondents to their office for interviews, which are still rarely over fifteen minutes long. The researchers often show respondents concepts for new products or a test commercial or have them taste a food product. The overall quality of mall intercept interviews is about the same as telephone interviews.

Computer-Assisted Personal Interviewing

Marketing researchers are applying computer technology in mall interviewing. The first technique is computer-assisted personal interviewing. The researcher conducts in-person interviews, reads questions to the respondent off the computer screen, and directly keys the respondent’s answers into the computer.

Computer-Assisted Self-Interview

A second approach is computer-assisted self-interviewing. A mall interviewer intercepts and directs willing respondents to nearby computers. Each respondent reads questions off a computer screen and directly keys his or her answers on a computer. The third use of technology is fully automated self-interviewing. Respondents are guided by interviewers or independently approach a centrally located computer station or kiosk, read questions of a screen, and directly key their answers into the station’s computer.

Telephone Interviews

Compared to the personal interview, the telephone interview costs less and may provide the best sample of any survey procedure. Although it is often criticized for poorer-quality than the in-home personal interview, studies have shown that this criticism may or may not be deserved.

Central-Location Telephone (CLT) facility

Most telephone interviewing is conducted from a specially designed phone room called a central-location telephone (CLT) facility. A phone room has many phone lines, individual interviewing stations, sometimes monitoring equipment, and headsets. The research firm typically will interview people nationwide from a single location.

Many CLT facilities offer computer-assisted interviewing. The interviewer reads the questions from a computer screen and enters the respondent’s data directly onto the computer. The researcher can stop the survey at any point and immediately print out the survey results. Thus, a researcher can get a sense of the project as it unfolds and fine-tune the research design as necessary. An on-line interviewing system can also save time and money because data entry occurs as the response is recorded rather than as a separate process after the interview. Hallmark Cards found that an interviewer administered a printed questionnaire for its Shoebox Greeting Cards in twenty-eight minutes. The same questionnaire administered with computer assistance took only eighteen minutes.

Mail Surveys

Mail surveys have several benefits: relatively low cost, elimination of interviewers and field supervisors, centralized control, and actual or promised anonymity for respondents (which may draw more candid responses). Some researchers feel that mail questionnaires give the respondent a chance to reply more thoroughly and to check records, talk to family members, and so forth. Yet mail questionnaires usually product low response rates.

Low response rates pose a problem because certain elements of the population tend to respond more than others. The resulting sample may therefore not represent the surveyed population. For example, the sample may have too many retired people and too few working people. In this instance, answers to a questionnaire about attitudes toward Social Security might indicate a much more favorable overall view of the system than is actually the case. Another serious problem with mail surveys is that no one probes respondents to clarify or elaborate on their answers.

Mail panels like those operated by Market Facts, National Family Opinion Research, and NPD Research offer an alternative to the one-shot mail survey. A mail panel consists of a sample of households recruited to participate by mail for a given period. Panel members often receive gifts in return for their participation. Essentially, the panel is a sample used several times. In contrast, to one-time mail surveys, the response rates from mail panels are high. Rates of 70 percent (of those who agree to participate) are not uncommon.

Executive Interviews

Executive interviews are used by marketing researchers to refer to the industrial equivalent of door-to-door interviewing. This type of survey involves interviewing business people, at their offices, concerning industrial products or services

Focus Group

A focus group is a type of personal interviewing. Often recruited by random telephone screening, seven to ten people with certain desired characteristics form a focus group. These qualified consumers are usually offered an incentive (usually $30 to $50) to participate in a group discussion. The meeting place (sometimes resembling a living room, sometimes featuring a conference table) has audio taping and perhaps video taping equipment. It also likely has a viewing room with a one-way mirror so that clients (manufacturers or retailers) may watch the session. During the session, a moderator, hired by the research company, leads the group discussion.

Group Dynamics

Focus groups are much more than question-and-answer interviews. The distinction is made between “group dynamics” and “group interviewing.” The interaction provided in group dynamics is essential to the success of the focus-group research; this interaction is the reason for conducting group rather than individual research. One of the essential postulates of group-session usage is the idea that a response from one person may become a stimulus for another, thereby generating an interplay of responses that may yield more than if the same number of people had contributed independently.

Questionnaire Design

All forms of survey research require a questionnaire. Questionnaires ensure that all respondents will be asked the same series of questions. Questionnaires include three basic types of questions: open-ended, closed-ended, and scaled response (see Exhibit 8.6 on page 265).

Open-Ended Question

An open-ended question encourages an answer phrased in the respondent’s own words. Researchers get a rich array of information based on the respondent’s frame of reference.

Closed-Ended Question

In contrast, a closed-ended question asks the respondent to make a selection from a limited list of responses. Traditionally, marketing researchers separate the two-choice question (called dichotomous) from the many-item type (often called multiple choice).

Scaled-Response Question

A scaled-response question is a closed-ended question designed to measure the intensity of a respondent’s answer.

Closed-ended and scaled-response questions are easier to tabulate than open-ended questions because response choices are fixed. On the other hand, if the researcher is not careful in designing the closed-ended question, an important choice might be omitted. For example, suppose this question were asked on a food study: “What do you normally add to a taco, besides meat, that you have prepared at home?

          Avocado                         1

          Cheese                            2

          Guacamole                      3

          Lettuce                           4

          Mexican hot sauce           5

          Olives                             6

          Onions                            7

          Peppers                          8

          Pimento                          9

          Sour Cream                    0

The list seems complete, doesn’t it? However consider the following responses: “I usually add a green, avocado-tasting hot sauce”; “I cut up a mixture of lettuce and spinach”: “I’m vegetarian; I don’t use meat at all. My taco is filled only with guacamole.” How would you code these replies? As you can see, the question needs an “other” category.

A good question must also be asked clearly and concisely, and ambiguous language must be avoided. Take, for example, the question “Do you live within ten minutes of here?” The answer depends on the mode of transportation (maybe the person walks), driving speed, perceived time, and other factors. Instead respondents should see a map with certain areas highlighted and be asked whether they live within one of those areas.

Observation Research

In contrast to survey research, observation research depends on watching what people do. Specifically, it can be defined as the systematic process of recording the behavioral patterns of people, objects, and occurances without questioning or communicating with them. A market researcher using the observational technique witness and records information as events occur or compiles evidence from records of past events. Carried a step further, observation may involve watching people or phenomena and may be conducted by human observers or machines.

Mystery Shoppers

Two common forms of people-watching-people research are mystery shoppers and one-way mirror observations. Mystery shoppers are researchers posing as customers, who gather observational data about a store (i.e., are the shelves neatly stocked?) and to collect data about customer/employee interactions. In the later case, of course, there is communication between the mystery shopper and the employee. The mystery shopper may ask, “How much is this item?” “Do you have this in blue?” or “Can you deliver this by Friday?” The interaction is not an interview and communication occurs only so the mystery shopper can observe the actions and comments of the employee.

Experiments

An experiment is a method a researcher can use to gather primary data. The researcher alters one or more variables—price, package design, shelf space, advertising theme, advertising expenditures—while observing the effects of those alterations on another variable (usually sales). The best experiments are those in which all factors are held constant except the ones being manipulated. The researcher can then observe that changes in sales, for example, result from changes in the amount of money spent on advertising.

Specifying the Sample Procedures

Once the researchers decide how they will collect primary data, their next step is to select the sampling procedures they will use. A firm can seldom take a census of all possible users of a new product, nor can they all be interviewed.

Sample

A sample is a subset from a larger population.

Universe

Several questions must be answered before a sampling plan is chosen. First, the population, or universe, of interest must be defined. This is the group from which the sample will be drawn. If should include all the people whose opinions, behavior, preferences, and so on are of interest to the market. For example, in a study whose purpose is to determine the market for a new canned dog food, the universe might be defined to include all current buyers of canned dog food.

After the universe has been defined, the next question is whether the sample must be representative of the population. If the answer is yes, a probability sample is needed. Otherwise, a nonprobability sample might be considered.

Probability Samples

A probability sample is a sample in which every element in the population has a known statistical likelihood of being selected. Its most desirable feature is that scientific rules can be used to ensure that the sample represents the population.

Random Sample

One type of probability sample is a random sample—a sample arranged in such a way that every element of the population has an equal chance of being selected as part of the sample. For example, suppose a university is interested in getting a cross section of student opinions on a proposed sports complex to be built using student activity fees. If the university can acquire an up-to-date list of all the enrolled students, it can draw a random sample by using random numbers from a table (found in most statistic books) to select students from the list. Common forms of probability and nonprobability samples are shown in Exhibit 8.8 on page 270.

Nonprobability Samples

Any sample in which little or no attempt is made to get a representative cross section of the population can be considered a nonprobability sample. A common form of a nonprobability sample is the convenience sample, based on using respondents who are convenient or readily accessible to the researcher—for instance, employees, friends, or relatives.

Nonprobability samples are acceptable as long as the researcher understands their nonrepresentative nature. Because of their lower cost, nonprobability samples are the basis of much marketing research.

Types of Errors

Whenever a sample is used in marketing research, two major types of errors occur: measurement error and sampling error.

Measurement Error

Measurement error occurs when there is a difference between the information desired by the researcher and the information provided by the measurement process. For example, people may tell an interviewer that they purchase Coors beer when they do not. Measurement error generally tends to be larger than sampling error.

Sampling Error

Sampling error occurs when a sample somehow does not represent the target population. Sampling error can be one of several types. Non response error occurs when the sample actually interviewed differs from the sample drawn. This error happens because the original people selected to be interviewed refused to cooperate or were inaccessible. For example, people who feel embarrassed about their drinking habits may refuse to talk about them.

Frame Error

Frame error, another type of sampling error, arises if the sample drawn from a population differs from the target population. For instance, suppose a telephone survey is conducted to find out Chicago beer drinkers’ attitudes toward Coors. If a Chicago telephone directory is used to frame (the device or list from which the respondents are selected), the survey will contain a frame error. Not all Chicago beer drinkers have a phone, and many phone numbers are unlisted. An ideal sample (for example, a sample with no frame error) matches all important characteristics of the target population to be surveyed. Could you find a perfect frame for Chicago beer drinkers?

Random Error

Random error occurs because the selected sample is an imperfect representation of the overall population. Random error represents how accurately the chosen sample’s true average (mean) value reflects the population’s true average (mean) value. For example, we might take a random sample of beer drinkers in Chicago and find that 16 percent regularly drink Coors beer. The next day we might repeat the same sampling procedure and discover that 14 percent regularly drink Coors beer. The difference is due to random error.

Collecting the Data

Marketing research field service firms collect most primary data. A field service firm specializes in interviewing respondents on a subcontracted basis. Many have offices throughout the country. A typical marketing research study involves data collection in several cities, requiring the marketer to work with a comparable number of field service firms. To ensure uniformity among all subcontractors, detailed field instructions should be developed for every job. Nothing should be open to chance; no interpretations of procedures should be left to subcontractors.

Besides conducting interviews, field service firms provide focus group facilities, mall intercepts locations, test product storage, and kitchen facilities to prepare test food products. They also conduct retail audits (counting the amount of a product sold off retail shelves). After an in-home interview is completed, field service supervisors validate the survey by recontacting about 15 percent of the respondents. The supervisors verify that certain responses were recorded properly and that the people were actually interviewed.

Analyzing the Data

After collecting the data, the marketing researcher proceeds to the next step in the research process: data analysis. The purpose of this analysis is to interpret and draw conclusions from the mass of data collected. The marketing researcher tries to organize and analyze those data by using one or more techniques common to marketing research: One-way frequency counts, cross-tabulations, and more sophisticated statistical analysis. Of these three techniques, one-way frequency counts are the simplest. One-way frequency tables are always done in data analysis, at least as a first step, because they provide the researcher with a general picture of the study results.

Cross Tabulation

A cross tabulation, or “cross-tab,” lets the analyst look at the responses to one question in relation to the responses to one or more other questions. For example, what is the association between gender and the brand of microwave popcorn bought most frequently? Hypothetical answers to these questions are shown in Exhibit 8.9. Although the Orville Redenbacher brand was most popular with both males and females, it was more popular with females. Compared with women, males strongly preferred the Pop Rite, whereas, women were more likely than men to buy Weight Watchers popcorn.

Researchers can use many other forms of powerful and sophisticated statistical techniques, such as hypothesis testing, measures of association, and regression analysis. A description of these techniques goes beyond the scope of this book but can be found in a good marketing textbook. The use of sophisticated statistical techniques depends on the researchers’ objectives and the nature of the data gathered.

Preparing and Presenting the Report

After data analysis has been completed, the researcher must prepare the report and communicate the conclusions and recommendations to management. This is a key step in the process. If the marketing researcher wants managers to carry out the recommendations, he or she must convince them that the results are credible and justified by the data collected.

Researchers are usually required to present both written and oral reports on the project. These reports should be tailored to the audience. They should begin with a clear, concise, statement of the research objectives, followed by a complete but brief and simple, explanation of the research design or methodology employed. A summary of major findings should come next. The conclusion of the report should also present recommendation to management.

Most people who enter marketing will become research users rather than research suppliers. Thus, they must know what to notice in a report. As with many other items we purchase, quality is not always readily apparent. Nor does a high price guarantee superior quality. The basis for measuring the quality of a marketing research report is the research proposal. Did the report meet the objectives established in the proposal? Was the methodology outlined in the proposal followed? Are the conclusions based on logical deductions from the data analysis? Do the recommendations seem prudent, given the conclusions?

Another criterion is the quality of the writing. Is the style crisp and lucid? It has been said that if readers are offered the slightest opportunity to misunderstand, they probably will. The report should also be as concise as possible.

Following Up

The final step in the marketing research process is to follow up. The researcher should determine why management did or did not carry out the recommendations in the report. Was sufficient decision-making information included? What could have been done to make the report more useful to management? A good rapport between the product manager, or whoever authorized the project, and the market researcher is essential. Often they must work together on many studies throughout the year.

The Profound Impact of the Internet on Marketing Research

In many ways, the Internet has turned the world of marketing research upside down. Old ways of conducting some types of research may soon seem quaint as a steam engine. New technologies and new ways of conducting traditional marketing research are now coming on line in increasing numbers every day. By 2005, Internet marketing research will account for about 50 percent of all marketing research revenue in the United States.

There are several reasons for the success of Internet marketing research.

·        It allows for better and faster decision making through much more rapid access to business intelligence.

·        It improves the ability to respond quickly to customer needs and market shifts.

·        It makes the conducting of follow up studies and longitudinal research easier and more fruitful.

·        It slashes labor- and time-intensive research activities (and associated costs), including mailing, telephone solicitation, data entry, data tabulation, and reporting.

Advantages of Internet Surveys

The huge growth in the popularity of Internet surveys is the result of the many advantages offered by the Internet. The specific advantages of Internet surveys are related to many factors.

Rapid development, real-time reporting: Internet surveys can be broadcast to thousands of potential respondents simultaneously, then results are tabulated and posted for corporate clients to view as the returns arrive. The result: survey results can be in a client’s hands in significantly less time than would be required for traditional surveys.

Dramatically reduced costs: The Internet can cut costs by 25 to 40 percent and provide results as fast as half the time it takes to do traditional telephone surveys. Data-collection costs account for a large proportion of any tradtitional market research budget. Telephone surveys are labor-intensive efforts incurring training, telecommunications, and management costs. Electronic methods eliminate these completely. While costs for traditional survey techniques rise proportionately with the number of interviews desired, electronic solicitations can grow in volume with little increase in project costs.

Personalized questions and data: Internet surveys can be highly personalized for greater relevance to each respondent’s own situation, thus speeding the response process. Respondents enjoy answering only pertinent questions, being able to pause and resume the survey as needed, having the ability to see previous responses and correct inconsistencies.

Improved respondent participation: Busy respondents may be growing increasingly intolorant of “snail mail” or telephone-based surveys. Internet surveys take half the time to complete than phone interviews do, can be accomplished at the respondents convenience (after work hours), and are much more stimulating and engaging. Graphics, interactivity, links to incentive sites and real-time summary reports make the interview enjoyable. The result? Much higher response rates.

Contact with the hard-to-reach: Certain groups—doctors, high-income professionals, top management in Global 2000 firms—are among the most surveyed on the planet and the most difficult to reach. Many of these groups are well represented on-line. Internet surveys provide convenient anytime/anywhere access that makes it easy for busy professionals to participate.

The rapid growth of Internet survey research is the result of mushrooming number of Americans on line—the current estimate being approximately 40 percent. This in turn has meant that researchers are finding on-line and off-line research results are the same. For example, America Online’s Digital Marketing Service (DMS), an online research organization, has done a number of surveys with both on-line and off-lines samples. DMS clients include IBM, Eastman Kodak, and Proctor & Gamble. In well over 100 side-by-side comparisons of on-line and off-line studies, both techniques led clients to the same business decisions. The guidance one gets from both sets of data was the same.

Internet Samples

Internet samples may be classified as unrestricted, screened, and recruited.

Unrestricted Internet Sample

In an unrestricted Internet sample, anyone who desires can complete the questionnaire. It is fully self-selecting and probably representative of noting but web surfers. The problem is exacerbated if the same Internet user can access the questionnaire repeatedly. For example, InfoWorld, a computer user magazine decided to conduct a Reader’s Choice survey for the first time on the Internet. The results were skewed by repeat voting for one product that the entire survey was publicly abandoned and the editor asked for the reader’s help to avoid the problem again. A simple solution to repeat respondents is to lock respondents out of the site after they have filled out the questionnaire.

Screened Internet Samples

Screened Internet samples adjust for the unrepresentativeness of the self-selected respondents by imposing quotas based on some desired sample characteristics. These are often demographic characteristics such as gender, income, and geographic region, or product related criteria such as past purchase behavior, job responsibilities, or current product use. The applications for screened samples are generally similar to those of unrestricted samples….

Recruitment Internet Samples

Recruitment Internet samples are used for targeted populations in surveys that require more control over the makeup of the sample. Respondents are recruited by telephone, mail, e-mail, or in person. After qualification, they are sent the questionnaire by email or are directed to a Web site that contains a link to the questionnaire. At Web sites, passwords are normally used to restrict access to the questionnaire to the recruited sample members. Since the makeup of the sample is known, completions can be monitored, and follow-up messages can be sent to those who do not complete the questionnaire, in order to improve the participation rate.

Recruited samples are ideal in applications that already have a database from which to recruit the sample. For example, a good application would be a survey that used a customer database to recruit respondents for a purchaser satisfaction study….

Scanner-Based Research

Scanner-based research is a system for gathering information from a single group of respondents by continuously monitoring the advertising, promotion, and pricing they are exposed to and the things they buy. The variables measured are advertising campaigns, coupons, displays, and product prices. The result is a huge database of marketing efforts and consumer behavior. Scanner-based research is bringing ever closer the Holy Grail of marketing research: an accurate, objective picture of the direct causal relationship between different kinds of marketing efforts and actual sales.

The two major scanner-based suppliers are Information Resources Incorporated (IRI) and the A.C. Nielsen Company. Each has about half the market. However, IRI is the founder of scanner-based research.

Behavior-Scan

IRI’s first product is called Behavior-Scan. A household panel (a group of three thousand long-term participants in the research project) has been recruited and maintained in each Behavior-Scan town. Panel members shop with an ID card, which is presented at the checkout in scanner-equipped grocery stores and drugstores, allowing IRI to track electronically each household’s purchases, item by item, over time. It uses microcomputers to measure TV viewing in each panel household and can send special commercials to panel member television sets. With such a measure of household purchasing, it is possible to manipulate marketing variables, such as TV advertising or consumer promotions, or to introduce a new product and analyze real changes in consumer buying behavior.

InfoScan

IRI’s most successful product is InfoScan—a scanner-based sales-tracking service for the consumer packaged-goods industry. Retail sales, detailed customer purchasing information (including measurement of store loyalty and total grocery basket expenditures), and promotional activity by manufacturers and retailers are monitored and evaluated for all bar-coded products. Data are collected weekly from more than 31,000 supermarkets, drugstores, and mass merchandisers.

When Should Marketing Research Be Conducted?

When managers have several possible solutions to a problem, they should not instinctively call for marketing research. In fact, the first decision to make is whether to conduct marketing research at all.

Some companies have been conducting research in certain markets for many years. Such firms understand the characteristics of target customers and their likes and dislikes about existing products. Under these circumstances, further research would be repetitive and waste money. Proctor & Gamble, for example, has extensive knowledge of the coffee market. After it conducted initial taste tests with Folger’s Instant Coffee, P&G went into national distribution without further research. Consolidated Foods Kitchen of Sara Lee followed the same strategy with its frozen croissants, as did Quaker Oats with Chewy Granola Bars. This tactic, however, does not always work. P&G marketers thought they understood the pain reliever market thoroughly, so they bypassed market research for Encaprin aspirin capsules. Because it lacked a distinct competitive advantage over existing products, however, the product failed and was withdrawn from the market.

Managers rarely have such great trust in their judgment that they would refuse more information if it were available and free. But they might have enough confidence that they would be unwilling to pay very much for the information or to wait a long time to receive it. The willingness to acquire additional decision-making information depends on the manager’s perceptions of its quality, price, and timing. Of course, if perfect information were available—that is, the data conclusively showed which alternative to choose—decision makers would be willing to pay more for it than for information that still left uncertainty. In summary, research should be undertaken only when the expected value of the information is greater than the cost of obtaining it.

Competitive Intelligence

Derived from military intelligence, competitive intelligence is an important tool for helping a form overcome a competitor’s advantage. Specifically, competitive intelligence can help identify the advantage, play a major role in determining how the advantage was achieved, and then provide insights on how it was achieved.

Competitive Intelligence

Competitive intelligence (CI) is the creation of a system that helps managers assess their competitors and their vendors in order to become a more efficient and effective competitor. Intelligence is analyzed information. It becomes decision making intelligence when it has implications for the organization. For example, a primary competitor may have plans to introduce a product with performance standards equal to ours but with a 15 percent cost advantage. The new product will reach the market in eight months. This intelligence has important decision making and policy consequences for management. Competitive intelligence and environmental scanning (where management gathers data about the external environment—see Chapter 2) combine to create marketing intelligence. Marketing intelligence is then used as input into a marketing decision support system.

Advantages of Competitive Intelligence

CI is one of the hottest areas in marketing today. Firms like General Motors, Ford, GTW, P&G Industries, AT&T, Motorola, and many others have large, well-established CI units. Aided by CI, the Ford Taurus came about after Ford engineers examined competitors’ cars and incorporated the best features into one auto.

CI helps managers assess their competition and their vendors, which, in turn, means fewer surprises. Competitive intelligence allows managers to predict changes in business relationships, identify marketplace opportunities, guard against threats, forecast a competitor’s strategy, discover new or potential competitors, learn from the success or failure of others, learn about new technologies that can affect the company, and learn about the impact of government regulations on the competition. In summery, CI promotes effective and efficient decision-making, which should lead to greater profitability. Sheena Sharp, Principal, Sharp Information Research, says: “CI gives the company the competitive advantage of foresight and allows it to learn today what will be discovered by others tomorrow.”

Summary

1.                 Explain the concept and purpose of a market decision support system. Decision support systems make data instantly available to marketing managers and allow them to manipulate the data themselves to make marketing decisions. Four characteristics of decision support systems make them especially useful to marketing managers: They are interactive, flexible, discovery oriented, and accessible. Decision support systems give managers access to information immediately and without outside assistance. They allow users to manipulate data in a variety of ways and to answer “what if” questions. And, finally, they are accessible to novice computer users.

2.                 Define marketing research and explain its importance to marketing decision-making. Marketing research is a process of collecting and analyzing data for the purpose of solving specific marketing problems. Marketers use marketing research to explore the profitability of marketing strategies. They can examine why particular strategies failed and analyze characteristics of specific market segments. Managers can use research findings to help keep current customers. Moreover, marketing research allows management to behave proactively rather than reactively by identifying newly emerging patterns in society and the economy.

3.                 Describe the steps involved in conducting a marketing research project. The marketing research process involves several basic steps. First, the researcher and the decision maker must agree on a problem statement or set of research objectives. The researcher then creates an overall research design to specify how primary data will be gathered and analyzed. Before collecting data, the researcher decides whether the group to be interviewed will be a probability or nonprobablity sample. Field service firms are often hired to carry out data collection. Once data have been collected, the researcher analyzes them using statistical analysis. The researcher then prepares and presents oral and written reports, with conclusions and recommendations, to management. As a final step, the researcher determines whether the recommendations were implemented and what could have been done to make the project more successful.

4.                 Discuss the profound impact of the Internet on marketing research. The Internet has vastly simplified the secondary data search process, placing more sources of information in front of researchers than ever before. Internet survey research is surging in popularity. Internet surveys can be created rapidly and reported in real time. They are also relatively inexpensive and can be easily personalized. Often researchers can contact respondents who are difficult to reach via the Internet. The Internet can also be used to distribute research proposals and reports and to facilitate collaboration between the client and the research supplier. Clients can access real-time data and analyze it as the collection process continues.

5.                 Discuss the growing importance of scanner-based research. A scanner-based research system enables marketers to monitor a market panel’s exposure and reaction to such variables as advertising, coupons, store displays, packaging, and price. By analyzing these variables in relation to the panel’s subsequent buying behavior, marketers can gain useful insight into sales and marketing strategies.

6.                 Explain the concept of competitive intelligence. Competitive intelligence (CI) is the creation of an intelligence system that helps managers assess their competition and their vendors in order to become more efficient and effective competitors. Intelligence is analyzed information, and it becomes decision-making intelligence when it has implications for the organization.

CI helps managers assess their competition and vendors. It leads to fewer surprises. CI allows managers to predict changes in business relationships, guard against threats, forecast a competitor’s strategy, and develop a successful marketing plan.

The Internet and databases accessed by the Internet offer excellent sources of CI. Company personnel, particularly sales and service representatives, are usually good sources of CI. Many companies require their salesperson to routinely fill out CI reports. Other external sources of competitive intelligence include experts, CI consultants, government agencies, UCC filings, suppliers, newspapers and other publications, Yellow Pages, and trade shows.