Week Three - Market Research

“A lot of people don’t know what they want until you show it to them” – Steve Jobs

This week in the lecture and in the readings, we started out reading about research and industry analysis. I thought the talk in Cohen about the release of the IBM personal computer was very interesting because it made me think back to when my brother was in college. He attended Umass starting in 2001 and I still remember lugging his desktop computer screen and modem tower up the stairs of his building. Its amazing to see how far we have come because my freshman year in 2009, it was the norm to have a laptop. In eight years there was a transition from floppy drives to CD drives. That just goes to prove the genius behind new technologies and products because there was a need for something more portable than a modem tower and large monitor with a keyboard and mouse.

In the lecture, it was stated how only five percent of new products succeed and therefore most companies will focus on improving their existing products. They stick with what they know because straying is risky. Without developing new products, they at the same time have to figure out how to increase profits and therefore have to get more out of a smaller budget. This is an important aspect of marketing. How do we handle what we need to under these budget constraints?

Sometimes to handle the budget constraints a business must not reveal the possible negatives about a business. My question about dishonesty was actually answered in class. I thought that fast food and cigarettes were a great example of businesses having to market a product that is potentially harmful. However, these companies try to highlight the positives of their product because any time research is done to determine the customer values, it’s an extra expenses. So it wouldn’t make sense if all you are going to do is be dishonest after spending money and it could affect company’s brand.

I think Jacob gave a great example in his blog for week 2. He stated that JC Penny advertises the same looking products at Macy’s for a cheaper price. However, Macy’s advertises that it is a place you will go and be treated like a friend would treat you. This is a quality that is valued by customers because it shows that Macy’s cares what the customer thinks/wants even though prices are higher.

It’s all about category attractiveness. “The three main areas of inquiry include basic aggregate factors, category factors related to the major participants, and environmental factors” (Lehmann 63). Figure 3.1 below is the Category Attractiveness Summary.

For aggregate factors usually larger markets are better than smaller ones and offer better opportunity. Also the current market growth as well as projected growth is an important factor when determining the market. Fast growing categories are preferred. At the same time, there could be interyear variation in demand that occurs. With attempts to develop new products and acquire other businesses, this could be desirably eliminated (Lehmann 65-67).

Category factors are more used to assess the structure of industries. This includes competition and rivalry, pressure from substitutes, relationships with suppliers/buyers, and the threat of new entrants. Lastly, environmental factors contribute to the category’s sensitivity.

Projected growth is an important factor to know and can also be know as Sales Forecasting. A good forecast takes into account four major categories of

variables: customer behavior, past and planned
company actions and strategies, competitor actions, and the environment. At the same time, forecasts are used in several ways:

1.     To answer “what if” questions.

2.     To help set budgets.

3.     To provide a basis for a monitoring system.

4.     To aid in production planning.

5.     By financial analysts to value a company.
 (Lehmann 215-216).

In other words, forecasting is an educated guess, a projection of how the market will fall and the resulting sales. There are several different models for sales forecasting but basically a model is specified indicating the form of the relation between the independent variables and sales. Most often the nature of the relationship is linear, such as:

Sales = b0 + b1(our price) + b2
(competitors’ prices) + b3 (our advertising) +  b4 (competitors’ advertising) + b5 (disposable income)

(Lehmann 231).

Oddly enough after all this talk about PCs, models and new products, Drucker was one to value the human brain as the best research for marketing. As Cohen stated, the problem was attempting to quantify the nonquantifiable (Cohen 155).  Some important nonquantifiable factors would be ignored, which could lead to incorrect or poor decisions. Drucker concluded:

·      If it’s not yet on the market, don’t do the market research in order to not give certain details away about your product. This could give an advantage to competitors.

·      Expert opinion is of limited value because only hindsight can tell us if they are right or wrong. (it is my personal belief that experts are important because they are trained to know more and be more skilled than others in their field. Yes, they can be wrong but they can also give a company insight).

·      You must understand the risks and the importance of the test of reality. The reality test could be something that can not be measured quantitatively but can be an important factor that goes unrealized unless tested.

·      It’s the customer that defines the product (or service). CUSTOMER IS THE MOST IMPORTANT MARKETING FACTOR. (I think this is the theme of the class haha).

·      There are three kinds of information that all researchers need (Inside, across organizations, and external). This will give the best sense of the market because it hands you information from all aspects.

·      You need to know what to emphasize when researching the customer. In other words, you need to know what they value. In class it was stated that you also need to know what other products lack and a possible solution for that when instituting a new product (Cohen 156).

Drucker also thought that when it came to demographics, which help determine what the customer values, you have to exploit the changes. “There is much more to demographics than the size of the population, and these other aspects of demographics can be even more important. They include age structure, ethnic composition, employment, education, and income” (Cohen 164). After analyzing these subgroups, a detailed profile of the characteristics of the members is created. They are then incorporated into the marketing strategy and then used to develop a marketing plan (Cohen 164). However, demographics change and marketers must adjust to keep up with relevant products. Drucker had a different way of analyzing demographics to use for marketing. “Drucker’s process was to observe events that have occurred, to reason to logical conclusions as to results, and then to seek opportunities in the competitive advantage of having this knowledge” (Cohen 168).

Whether, Drucker’s method was agreed upon is debated but it is no secret that he was a great predictor of market events.

I would think that Aleena’s job is very difficult as I see her blog post example of her customer base. She states, “Our customers are countries (or, more specifically, governments) and not individuals or even companies.  Although we most likely have to do plenty of marketing research in terms of keeping up-to-date with emerging technologies and keeping our eyes on competitors (especially when trying to win a contract), our customers tell us their needs outright (although, what they 'need' and what we can actually do are two different things).” I would think that because there are more demographics to analyze, business would be more difficult but she proved me wrong. This goes to show the absolute importance of communication with the customer.

One last thing to point out: I learned something new in Pharmasim from the lecture. 

How to find people who reside in market place:

Go to "brands purchased survey" – click on brand Allround period zero

The markets units purchased is 511.4 million units purchased in the marketplace

The market demand – current number of users units they would purchase

therefore, 112 million sold of the 511.4

 

Then to decompose – or the amount of people you would find in market place

Divide by average units purchased found in decision criteria

511.4/2.7 units per year – people that reside in marketplace

how to figure out all the people that don’t use product –

calculate market penetration – 64.2%

511.4/64.2 = total market