Marketing researchers use tracking studies immediately before an upcoming film's release to

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music, and ending to identify improvements to make in the final edit. John Cameron, for example, used a test screening of a segment of Avatar to convince Twentieth Century Fox executives of the movie’s potential appeal.

Tracking studies. Before an upcoming film’s release studios will ask prospective moviegoers in the target audience three questions: (1) Are you aware of the film? (2) Are you interested in seeing the film? (3) Will you see the film? Studios also use “social listening” to understand what potential moviegoers are saying on Twitter, YouTube, Tumblr, Facebook, Instagram, and other social media sites. Studios use these data to monitor a promotional campaign, forecast the movie’s opening weekend box-office sales and, if necessary, add additional marketing activities to promote the film.

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These examples show how marketing research leads to effective marketing actions, the main topic of this chapter. Also, marketing research is often used to help a firm develop its sales forecasts, the final topic of this chapter.

THE ROLE OF MARKETING RESEARCH Let’s (1) look at what marketing research is, (2) identify some difficulties with it, and (3) describe the five steps marketers use to conduct it.

The text describes how its test screening helped Avatar become a success. © Twentieth Century-Fox Film Corporation/Photofest

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LO 8-1

Identify the reason for conducting marketing research.

What Is Marketing Research?

Marketing research is the process of defining a marketing problem and opportunity, systematically collecting and analyzing information, and recommending actions. Although imperfect, marketers conduct marketing research to reduce the risk of and thereby improve marketing decisions.

The Challenges in Doing Good Marketing Research

Whatever the marketing issue involved—whether discovering consumer tastes or setting the right price—good marketing research is challenging. For example:

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Suppose your firm is developing a product that is completely new to the marketplace, and you are charged with estimating demand for the product. How can marketing research determine if consumers will buy a product they have never seen, and never thought about, before? Understanding why consumers purchase some products often requires answers to personal questions. How can marketing research obtain answers that people know but are reluctant to reveal?

Past purchase behaviors may help firms understand the influence of marketing actions. How can marketing research help people accurately remember and report their interests, intentions, and purchases?

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LO 8-2

Describe the five-step marketing research approach that leads to marketing actions.

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Marketing research must overcome these difficulties and obtain the information needed so that marketers can assess what consumers want and will buy.

Five-Step Marketing Research Approach

A decision is a conscious choice from among two or more alternatives. All of us make many such decisions daily. At work we choose from alternative ways to accomplish an assigned task. At college we choose from alternative courses. As consumers we choose from alternative brands. No magic formula guarantees correct decisions.

Managers and researchers have tried to improve the outcomes of decisions by using more formal, structured approaches to decision making, the act of consciously choosing from among alternatives. The systematic marketing research approach used to collect information to improve marketing decisions and actions described in this chapter uses five steps and is shown in Figure 8–1. Although the five-step approach described here focuses on marketing decisions, it provides a systematic checklist for making both business and personal decisions.

Figure 8–1 Five-step marketing research approach leading to marketing actions. Lessons learned from past research mistakes are fed back to improve each of the steps.

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STEP 1: DEFINE THE PROBLEM Every marketing problem faces its own research challenges. For example, the marketing strategy used by LEGO Group’s toy researchers and designers in Denmark illustrates the wide variations possible in collecting marketing research data to build better toys.

LEGO Group’s definition of “toy” has changed dramatically in the past 50 years—from interlocking plastic bricks to construction sets that create figures, vehicles, buildings, and even robots. One new version of a LEGO Group toy is the MINDSTORMS kit, which integrates electronics, computers, and robots with traditional LEGO Group bricks. Developed with the help of the Media Lab at the Massachusetts Institute of Technology, the MINDSTORMS kit appeals to a diverse

market—from elementary school kids to world-class robotics experts. The kits can be found in homes, schools, universities, and industrial laboratories.

A simplified look at the marketing research for the LEGO Group’s MINDSTORMS EV3 shows the two key elements in defining a problem: setting the research objectives and identifying possible marketing actions.

Set the Research Objectives

Research objectives are specific, measurable goals the decision maker seeks to achieve in conducting the marketing research. For

LEGO Group’s MINDSTORMS EV3 TRACK3R has an interchangeable bazooka and hammer—and can operate after only 20 minutes of assembly. Source: LEGO Group

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LEGO Group, let’s assume the immediate research objective is to decide which of two new MINDSTORMS designs should be selected for marketing.

In setting research objectives, marketers have to be clear on the purpose of the research that leads to marketing actions. The three main types of marketing research are as follows:

Identify Possible Marketing Actions

Effective decision makers develop specific measures of success , which are criteria or standards used in evaluating proposed solutions to the problem. Different research outcomes, based on the measure of success, lead to different marketing actions. For LEGO Group, assume the measure of success is the total time spent with each of the two potential new MINDSTORMS kits until a device

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1. Exploratory research provides ideas about a vague problem. LEGO Group was concerned that middle school kids would be overwhelmed by the 500-plus pieces in MINDSTORMS kits and quickly lose interest. LEGO Group’s brainstorming—an example of exploratory research—revealed kids need to have a basic device up, running, and doing tricks in 20 minutes.

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LEGO Group’s MINDSTORMS EV3RSTORM has infrared sensors that let it walk or skate. Source: LEGO Group

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2. Descriptive research generally involves trying to find the frequency with which something occurs or the extent of a relationship between two factors. So if LEGO Group wants to know which of the two MINDSTORMS kits is of greatest interest to middle school versus high school students, it might ask them. LEGO Group can then assess the relationship by doing a cross tabulation (discussed later in the

chapter) of school level versus kit preference.

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3. Causal research tries to determine the extent to which the change in one factor changes another one. Changing key pieces in a MINDSTORMS kit affects how quickly the newly built device can do tricks—affecting acceptance by kit users. Test markets, discussed later, use causal research.

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that can do simple tricks is produced. This measure of success leads to a clear-cut marketing action: Market the kit that produces an acceptable device in the least amount of playing time.

Marketing researchers know that defining a problem is an incredibly difficult task. If the objectives are too broad, the problem may not be researchable. If they are too narrow, the value of the research results may be seriously lessened. This is why marketing researchers spend so much time defining a marketing problem precisely and writing a formal proposal that describes the research to be done.

STEP 2: DEVELOP THE RESEARCH PLAN The second step in the marketing research process requires that the researcher (1) specify the constraints on the marketing research activity, (2) identify the data needed for marketing actions, and (3) determine how to collect the data.

Specify Constraints

The constraints in a decision are the restrictions placed on potential solutions to a problem. Examples include the limitations on the time and money available to solve the problem.

What constraints might LEGO Group set in developing new LEGO Group MINDSTORMS EV3 products? LEGO Group might establish the following constraints on its decision to select one of the two improved designs: The decision (1) must be made in five weeks (2) using 10 teams of middle schoolers playing with the two improved MINDSTORMS kits.

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Identify Data Needed for Marketing Actions

Effective marketing research studies focus on collecting data that will lead to effective marketing actions. In the MINDSTORMS case, LEGO Group’s marketers might want to know students’ math skills, time spent playing video games, and so on. But that information, while nice to know, is largely irrelevant because the study should focus on collecting only those data that will help them make a clear choice between the two MINDSTORMS designs.

Determine How to Collect Data

Determining how to collect useful marketing research data is often as important as actually collecting the data—step 3 in the process, which is discussed later. Two key elements to consider in deciding how to collect the data are (1) concepts and (2) methods.

Concepts

In the world of marketing, concepts are ideas about products or services. To find out about consumer reactions to a potential new product, marketing researchers frequently develop a new-product concept, which is a picture or verbal description of a product or service the firm might offer for sale. For example, the LEGO Group designers might develop a new-product concept for a new MINDSTORMS EV3 robot that uses a color sensor, responds to voice commands, or uses GPS navigation software.

Methods

Methods are the approaches that can be used to collect data to solve all or part of a problem. To collect data, LEGO Group marketing researchers might use a combination of (1) observing the behavior of MINDSTORMS users and (2) asking users questions about their opinions of the MINDSTORMS kits. Observing people and asking them questions—the two main data collection methods—are discussed in the section that follows.

How successful is LEGO Group’s marketing research and design strategy for its MINDSTORMS products? Among younger users alone, tens of thousands of elementary and middle-school teams face

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off in competitions around the world each year.

How can you find and use the methods that other marketing researchers have found successful? Information on useful methods is available in tradebooks, textbooks, and handbooks that relate to marketing and marketing research. Some periodicals and technical journals, such as the Journal of Marketing and the Journal of Marketing Research, both published by the American Marketing Association, summarize methods and techniques valuable in addressing marketing problems.

Special methods vital to marketing are (1) sampling and (2) statistical inference. For example, marketing researchers often use sampling by selecting a group of distributors, customers, or prospects, asking them questions, and treating their answers as typical of all those in whom they are interested. They may then use statistical inference to generalize the results from the sample to much larger groups of distributors, customers, or prospects to help decide on marketing actions.

learning review

8-1. What is marketing research? 8-2. What is the five-step marketing research approach? 8-3. What are constraints as they apply to developing a research plan?

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LO 8-3

Explain how marketing uses secondary and primary data.

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STEP 3: COLLECT RELEVANT INFORMATION Collecting enough relevant information to make a rational, informed marketing decision sometimes simply means using your knowledge to decide immediately. At other times it entails collecting an enormous amount of information at great expense.

Figure 8–2 shows how the different kinds of marketing information fit together. Data , the

facts and figures related to the project, are divided into two main parts: secondary data and primary data. Secondary data are facts and figures that have already been recorded prior to the project at hand. As shown in Figure 8–2, secondary data are divided into two parts—internal and external secondary data—depending on whether the data come from inside or outside the organization needing the research. Primary data are facts and figures that are newly collected for the project. Fi gure 8–2 shows that primary data can be divided into observational data, questionnaire data, and other sources of data.

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Secondary Data: Internal

The internal records of a company generally offer the most easily accessible marketing information. These internal sources of secondary data may be divided into two related parts: (1) marketing inputs and (2) marketing outcomes.

Marketing input data relate to the effort expended to make sales. These range from sales and advertising budgets and expenditures to salespeople’s call reports, which describe the number of sales calls per day, who was visited, and what was discussed.

Marketing outcome data relate to the results of the marketing efforts. These involve accounting

Figure 8–2 Types of marketing information. Researchers must choose carefully among these to get the best results, considering time and cost constraints.

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records on shipments and include sales and repeat sales, often broken down by sales representative, industry, and geographic region. In addition, e-mails, phone calls, and letters from customers can reveal both complaints and what is working well.

Secondary Data: External

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Scanner data at supermarket checkout counters provide valuable information for marketing decisions. © Pixtal/AGE Fotostock

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Published data from outside the organization are external secondary data. The U.S. Census Bureau publishes a variety of useful reports. Best known is the Census 2010, which is the most recent count of the U.S. population that occurs every 10 years. Recently, the Census Bureau began collecting data annually from a smaller number of people through the American Community Survey. Both surveys contain detailed information on American households, such as the number of people per household and the age, sex, race/ethnic background, income, occupation, and education of individuals within the household. Marketers use these data to identify characteristics and trends of ultimate consumers.

The Census Bureau also publishes the Economic Census, which is conducted every five years. These reports are vital to business firms selling products and services to organizations. The 2012 Economic Census contains data on the number and sales of establishments in the United States that produce a product or service based on each firm’s geography (state, county, zip code, etc.), industry sector (manufacturing, retail trade, etc.), and North American Industry Classification System (NAICS) code. Data from the 2012 Economic Census are released from March 2014 through June 2016 and the next Economic Census takes place in October 2017.

Census kerin.tv/13e/v8-2

Several market research companies pay households and businesses to record all their purchases using a paper or electronic diary. Such syndicated panel data economically answer questions that require consistent data collection over time, such as, “How many times did our customers buy our products this year compared to last year?” Examples of syndicated panels that provide a standard set of data on a regular basis are the Nielsen TV ratings and J.D. Power’s automotive quality and customer satisfaction surveys.

Some data services provide comprehensive information on household demographics and lifestyle, product purchases, TV viewing behavior, responses to coupon and free-sample promotions, and

VIDEO 8-2

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social media use. Their advantage is that a single firm can collect, analyze, interrelate, and present all this information. For consumer product firms such as Procter & Gamble, sales data from various channels help them allocate scarce marketing resources. As a result, they use tracking services such as IRI’s InfoScan to collect product sales and coupon/free-sample redemptions that have been scanned at the checkout counters of supermarket, drug, convenience, and mass merchandise retailers.

Finally, trade associations, universities, and business periodicals provide detailed data of value to market researchers and planners. These data are often available online and can be identified and located using a search engine such as Google or Bing. The Marketing Matters box provides examples.

Marketing Matters

Online Databases and Internet Resources Useful to Marketers

Marketers in search of secondary data can utilize a wide variety of online databases and Internet resources. These resources provide access to articles in periodicals; statistical or financial data on markets, products, and organizations; and reports from commercial information companies.

Sources of news and articles include:

Sources of statistical and financial data on markets, products, and organizations include:

technology

LexisNexis Academic (www.lexisnexis.com) which provides comprehensive news and company information from domestic and foreign sources.

The Wall Street Journal (www.wsj.com), CNBC (www.cnbc.com), and Fox Business (www.foxbusiness.com)), which provide up-to- the-minute business news and video clips about companies, industries, and trends.

FedStats (www.fedstats.sites.usa.gov) and the Census Bureau (ww w.census.gov) of the U.S. Department of Commerce, which provide information on U.S. business, economic, and trade activity collected by

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Portals and search engines include:

Some of these websites are accessible only if you or your educational institution have paid a subscription fee. Check with your institution’s website.

Advantages and Disadvantages of Secondary Data

A general rule among marketing people is to obtain secondary data first and then collect primary data. Two important advantages of secondary data are (1) the tremendous time savings because the data have already been collected and published or exist internally and (2) the low cost, such as free or inexpensive Census reports. Furthermore, a greater level of detail is often available through secondary data, especially U.S. Census Bureau data.

However, these advantages must be weighed against some significant disadvantages. First, the secondary data may be out of date, especially if they are U.S. Census data collected only every 5 or 10 years. Second, the definitions or categories might not be quite right for a researcher’s project. For example, the age groupings or product categories might be wrong for the project. Also, because the data have been collected for another purpose, they may not be specific enough for the project. In such cases, it may be necessary to collect primary data.

the federal government.

USA.gov (www.usa.gov), the portal to all U.S. government websites. Users can click on links to browse by topic or enter keywords for specific searches.

Google (www.google.com), the most popular portal to the entire Internet. Users enter keywords for specific searches and then click on results of interest.

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LO 8-4

Discuss the uses of observations, questionnaires, panels, experiments, and newer data collection methods.

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learning review

8-4. What is the difference between secondary and primary data? 8-5. What are some advantages and disadvantages of secondary data?

Primary Data: Watching People

Observing people and asking them questions are the two principal ways to collect new or primary data for a marketing study. Facts and figures obtained by watching how people actually behave is the way marketing researchers collect observational data . Observational data can be collected by mechanical (including electronic), personal, or neuromarketing methods.

Mechanical Methods

National TV ratings, such as those of Nielsen shown in Figure 8–3, are an example of mechanical observational data collected by a “people meter.” The device measures what channel and program are tuned in and who is watching. The people meter (1) is a box that is attached to a television, DVR, cable box, or satellite dish in about 30,000 households

across the country; (2) has a remote control unit that is used to indicate when a viewer begins and finishes watching a TV program; and (3) stores and then transmits the viewing information to Nielsen each night. Data about TV viewing are also collected using diaries (a paper-pencil recording system).

What determines if Dancing With The Stars stays on the air? For the importance of the TV “ratings game,” see the text. © Adam Taylor/ABC via Getty Images

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Obtaining an accurate picture of television viewing behavior is complicated, however, as audiences are increasingly delaying their viewing and watching on multiple devices. More than 40 percent of viewing of The Blacklist, for example, takes place on a delayed basis, while 37 percent of Parks and Recreation viewers watch on devices other than televisions. To address these issues, Nielsen introduced a “cross-platform television rating,” which combines Nielsen’s existing TV ratings with its new online ratings. These ratings include traditional consumer viewing of TV programs and

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programming that is streamed on PCs, smartphones, tablets, and video game consoles.

On the basis of all these observational data, Nielsen then calculates the rating of each TV program. With 116 million TV households in the United States, a single rating point equals 1 percent, or 1,160,000 TV households. In some situations ratings are reported as share points, or the percentage of television households with a television in use that are tuned to the program. Because TV and cable networks sell over $67 billion annually in advertising and set advertising rates to advertisers on the basis of those data, precision in the Nielsen data is critical.

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A change of one percentage point in a rating can mean gaining or losing millions of dollars in advertising revenues because advertisers pay rates on the basis of the size of the audience for a TV program. So as shown by the green rows in Figure 8–3, we might expect to pay more for a 30- second TV ad on NCIS than one on 60 Minutes. Broadcast and cable networks may change the time slot or even cancel a TV program if its ratings are consistently poor and advertisers are unwilling to pay a rate based on a higher rating.

Personal Methods

RANK PROGRAM NETWORK RATING VIEWERS (000)

1 NCIS CBS 9.3 14,939

2 Dancing with the Stars ABC 8.6 13,479

3 NCIS: New Orleans CBS 8.5 13,610

4 DWS: The Results Show(s) ABC 6.7 10,159

5 Billboard Music Awards ABC 6.5 11,181

6 The Voice NBC 6.2 10,051

7 The Big Bang Theory CBS 6.1 9,567

8 The Voice-Tues NBC 5.8 9,138

9 60 Minutes CBS 5.7 8,989

10 Grey’s Anatomy ABC 5.7 8,332

Source: The Nielsen Company Broadcast Ranking Report for the week ending May 11, 2015. Viewing estimates include live viewing and DVR playback on the same day, defined as 3 A.M. to 3 A.M. Rank is based on the number of U.S. viewers (in millions) from Nielsen’s National People Meter Sample. Nielsen © 2013.

*** Figure 8–3 Nielsen Television Index Ranking Report for network TV prime-time households for the week ending May 11, 2015. The difference of a few share points in Nielsen TV ratings affects the cost of a TV ad on a show and even whether the show remains on the air.

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Watching consumers in person is another approach to collecting observational data. Procter and Gamble, for example, invests millions of dollars in observational research to identify new innovations. As several industry experts have observed, “Odds are that as you’re reading this, P&G researchers are in a store somewhere observing shoppers, or even in a consumer’s home.” When observing consumers using its Tide laundry detergent in India, P&G noticed that because clothes were often washed by hand, the detergent sometimes caused skin irritation. As result, P&G introduced Tide Naturals, which cleaned well without causing irritation. Similarly, IKEA noticed that customers often stopped shopping when their baskets or carts were full, so additional shopping bags are now placed throughout IKEA stores.14

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Another method of collecting observational data is through the use of mystery shoppers. Companies pay researchers to shop at their stores, outlets, or showrooms to obtain the point of view of actual customers. Mystery shoppers can check on the

Observational data led P&G to develop Tide Naturals. © McGraw-Hill Education/Editorial Image, LLC, photographer

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availability and pricing of products and services and on the quality of the customer service provided by employees. Supermarkets such as Kroger, Publix, and H-E-B, for example, use this technique as part of their customer experience management efforts by evaluating customer service, store cleanliness, and staff appearance and conduct. This process provides unique marketing research information that can be obtained in no other way.