Chapter 4
Conducting Marketing
Research and Forecasting
Demand
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Copyright © 2003 Prentice-Hall, Inc.
Key Points for Chapter 4
1
2
3
4
5
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7
8
9
10
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Marketing research of small businesses
Secondary data sources
Primary data
Research approach
Research instruments
Sampling plan
Probability sample
Contact methods
Seven characteristics of good marketing research
Potential, available, target, penetrated market
Estimating future demand
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The Marketing Research System
 Marketing Research
 Systematic design, collection, analysis, and
reporting of data and findings relevant to a
specific marketing situation facing the firm
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Suppliers of Marketing Research
 Large companies: 1 to 2% of company sales spent
on services of outside firms
 Small companies
 Engaging students or professors to design and carry out
projects
 Using the Internet
 Competitors’ Websites, Chat rooms, Published data
 Checking out rivals
 Visit competitors:
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Figure 4-1:
The Marketing
Research
Process
5 Steps
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Marketing Research Process
Step 1: Define the Problem and/or Research
Objectives
 Defines the problem a firm needs to solve and/or
objectives to achieve with a market research
 The hardest step among research process
 Types of Research
 Exploratory research: To find the real nature of the problem
and possible solutions or new ideas
 Descriptive research: To ascertain certain magnitudes (how
many?)
 Causal research: To test cause-and-effect relationship
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Marketing Research Process
Step 2: Develop the Research Plan
 Developing the most efficient plan for gathering the
needed information
 Cost/benefit analysis
 Projected revenue-net profit=maximum research cost
 Calls for decisions on:
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Data Sources
Research Approaches
Research Instruments
Sampling Plan
Contact Methods
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Step 2: Develop the Research Plan
Data Sources
 Secondary data:
 Collected for another purpose and already
exists somewhere
 Low cost and ready availability
 Primary data
 Freshly gathered for a specific purpose or
for a specific research project
 Which one to use?
 Start with secondary data.
 If the needed data do not exist or are dated,
inaccurate, incomplete, or unreliable, then, collect
the primary data
4-8
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Step 2: Develop the Research Plan
Research Approaches
 Observational research
 Observe relevant actors or settings
 Ethnographic Research
 Send researchers to consumer’s place and watch how
they use the product
 Focus group Research
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A small group of 6 to 10 people carefully selected
Useful for exploratory research
Must avoid generalizing the findings to whole market
Must eliminate or minimize interviewer’s influences
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Step 2: Develop the Research Plan
Research Approaches
 Survey research
 Ask questions and analyze results
 Best suited for descriptive research
 Behavioral data
 Actual data for what consumers did
 Store scanning data, catalog purchases, customer
databases
 Experimental research
 To find cause-effect relationships
 Matched groups of subjects receiving different
treatments
 Must be statistically significant
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Step 2: Develop Research Plan
Research Instruments
 Questionnaires: (Table 4.1)
 Closed-end questions:
 Specify all the possible answers from which respondents
select their answers
 Easy to tabulate and interpret
 Open-end questions:
 Allow respondents to answer in their own words
 Reveal more about how they feel or think
 Hard to tabulate but useful in exploratory research
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Step 2: Develop Research Plan
Research Instruments
 Types of Closed-end questions
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Dichotomous
Multiple choice
Likert scale
Semantic differential
Importance scale
Rating scale
Intention-to-buy scale
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Step 2: Develop Research Plan
Research Instruments
 Types of Open-end questions
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Completely unstructured
Word association
Sentence completion
Story completion
Picture
Thematic Apperception Test (TAT)
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Questionnaire Dos and Don’ts (MM)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Ensure that questions are without a bias.
Make the questions as simple as possible.
Make the questions specific.
Avoid jargon or shorthand.
Steer clear of sophisticated or uncommon words.
Avoid ambiguous words.
Avoid questions with a negative in them.
Avoid hypothetical questions.
Don’t use the words that could be mislead.
Desensitize questions by using response bands.
Ensure that fixed responses do not overlap.
Allow for “other” in fixed response questions
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Step 2: Develop Research Plan
Research Instruments
 Technological Devices
 Eye Tracking monitor (Eye Camera)
 Measures unconscious eye movements
 Galvanometer:
 Measures galvanic skin response
 Pupilometer:
 Measures changes in the diameter of a subject’s pupils
 Peoplemeter:
 Attached to the television set of a consumer panel
 Measures who is watching what programs
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Step 2: Develop Research Plan
Sampling Plan
 Sampling unit:
 Who is to be surveyed?.
 Target population that will be sampled
 Sample size:
 How many people should be surveyed?
 Larger size, more reliable. 1% of population can be
reliable enough, given credible sampling procedure
 Sampling procedure:
 How should the sample be chosen? Probability
sample of population should be drawn.
 If cost or time too high, nonprobability sample can
be used with caution.
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Copyright © 2003 Prentice-Hall, Inc.
Table 4-2: Probability and Nonprobability Samples
A. Probability Sample
Simple random sample
Every member of the population has an
equal chance of selection
Stratified random
sample
The population is divided into mutually
exclusive groups (such as age groups),
and random samples are drawn from
each group
Cluster (area) sample
The population is divided into mutually
exclusive groups (such as city blocks),
and the researcher draws a sample of
the groups to interview
Continued on next slide . . .
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Table 4-2: Probability and Nonprobability Samples
(Continued)
B. Nonprobability
Sample
Convenience sample
The researcher selects the most
accessible population members
Judgment sample
The researcher selects population
members who are good prospects for
accurate information
Quota sample
The researcher finds and interviews a
prescribed number of people in each of
several categories
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Step 2: Develop Research Plan
Contact Methods
 Mail Questionnaire
 Very low response rate about less than 2%
 Takes too long to get responses back
 Telephone Interview
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Can gather information quickly
Interviewer can clarify questions
Interviewer’s influences
Consumer’s reluctance to give honest answers
Exempt from Do-Not-Call restriction
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Step 2: Develop Research Plan
Contact Methods
 Personal Interview
 Most versatile method. Can record additional
observations
 Most expensive
 Interviewer’s influence or bias or distortion
 Consumers’ reluctance to give honest answers
 Online Interview
 Places questionnaire on Website and offer incentives
to answer
 Most honest answers
 Sampling problem: Not random sampling
 Unqualified respondents
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Copyright © 2003 Prentice-Hall, Inc.
Marketing Research Process
 Step 3: Collect the Information
 Most expensive phase and prone to error
 Some refuse to answer, give dishonest answers
 Step 4: Analyze the Information
 Tabulates collected data and develops frequency
distribution
 Extracts pertinent findings from collected data
 Step 5: Present the Findings
 Presents findings to decision makers or users
 Step 6: Make the Decision
 Managers must decide to use it or not
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Copyright © 2003 Prentice-Hall, Inc.
The Seven Characteristics of Good
Marketing Research (Table 4.3)
1.
2.
3.
4.
5.
6.
7.
Scientific method
Research creativity
Multiple methods
Interdependence of models & data
Value & cost of information
Healthy skepticism
Ethical marketing
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Forecasting and Demand
Management
 Once the market research is completed, the
company must measure and forecast the size,
growth, and profit potential of each market
opportunity
 Sales forecasts are based on estimates of demand
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Copyright © 2003 Prentice-Hall, Inc.
Forecasting and Demand
Management
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The Measure of Market Demand
A Vocabulary of Demand Measurement
Estimating Current Demand
Estimating Future Demand
4-24
Copyright © 2003 Prentice-Hall, Inc.
The Measure of Market Demand
 Which Market to Measure? Breakdown of a
Market
 Potential market
 Customers with sufficient interest in market offering
 Available market
 Interest, income, and access
 Qualified available market:
 Interest, income, access, and qualification
 Target market:
 Part of qualified available market a firm pursues
 Penetrated market
 Customers who are currently buying a firm’s
products
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Ninety Types of Demand Measurement
(Figure 4.4)
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Copyright © 2003 Prentice-Hall, Inc.
A Vocabulary for Demand
Measurement
 Market Demand
 The total volume that would be bought by a defined
consumer group in a defined geographic area in a
defined time period in a defined marketing
environment under a defined marketing program
 Market minimum
 Base sales without demand stimulating
expenditures
 Market sensitivity of demand
 Distance between market minimum and market
potential
 The longer the distance, more expansible the
market with marketing expenditure
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Marketing Expenditure & Market Demand
(Fig. 4.5)
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A Vocabulary for Demand
Measurement
 Market Demand (continued)
 Expansible market:
 By industry marketing expenditures
 Non-expansible market:
 Market size cannot increase. Take market share
from competitors. Weekly garbage removal
 Market penetration index:
 Current level of market demand divided by
potential level of market demand for all the firms
 Share penetration index:
 A firm’s current market share divided by potential
market share
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Copyright © 2003 Prentice-Hall, Inc.
A Vocabulary for Demand
Measurement
 Market Forecast
 Market demand created by industry marketing
expenditures
 Market Potential
 Upper limit to market potential
 Product penetration percentage
 Percentage of ownership in a population
 TV 98%, Health Insurance 84%, Car 81%, Home 67%,
PC54%, Stock 48%, Gun 41%
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A Vocabulary for Demand
Measurement
 Company Sales Forecast
 Expected level of a firm’s sales
 Sales Quota
 Set slightly higher than sales forecast
 Sales Budget
 Used for budgeting of purchasing, production,
and cash flow
 Set slightly lower than sales forecast
 Company Sales Potential
 A firm’s upper sales limit
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Estimating Current Demand
 Total Market Potential
 Maximum amount of sales available to all the firms in
an industry
 Potential number of buyers times average quantity
purchased times price
 Demand for the new light beer on p. 113
 Area Market Potential
 Market-Buildup Method
 Identify all the potential buyers in an area market
and estimate their potential purchases
 Used primarily by business marketers
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Market-Buildup Method Using SIC Codes
SIC
2511
2521
(a)
Annual
Sales in
Millions
of $
(b)
Number of
Establishments
(c)
Potential
Number
of Lathe Sales
Per $1 Million
Customer Sales
1
6
10
60
5
2
10
100
1
3
5
15
5
1
5
25
30
200
Market
Potential
(a x b x c)
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Copyright © 2003 Prentice-Hall, Inc.
Estimating Current Demand
 Area Market Potential
 Multiple-Factor Index Method
 Primarily used by consumer marketers
 Straightforward index method using a ratio between
multiple factors of an area and multiple factors of whole
nation
 Percentage of disposable personal income, retail
sales, population of an area against total U.S.
 Each factor is given a specific weight: 0.5, 0.3, and
0.2
 2.00% of the U.S. disposable personal income
1.96% of the U.S. retail sales
2.28% of the U.S. population
 0.5 x 2.00%+0.3 x 1.96%+0.2 x 2.28%=2.04% of the
U.S. sales of a certain product
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Estimating Current Demand
 Area Market Potential
 Census track:
 Small, relatively permanent statistical
subdivision of a county
 Stable boundaries and population of about 1,5008,000 (Optimum 4,000)
 Extremely useful for identifying high-potential
retail areas or for buying mailing list
 Industry Sales and Market Shares
 Company needs to know actual industry sales and
 Should evaluate its performance against the whole
industry
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Estimating Future Demand
 Firms may do it internally or outsource it to
the outside firms
 Market research firms
 Futurist research firms
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Estimating Future Demand
 All forecasts are built on one of three
information bases
 1) What people say
 Survey intentions or opinions of buyers
 2) What people do
 Put the product into a test market and watch
what people do
 3) What people have done
 Analyze records of past buying behavior
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Estimating Future Demand
Methods
 Survey of Buyers’ Intentions
 Purchase probability scale: Do you intend to buy xxx within
6 months?
 0.00 (No chance), 0.20 (slight possibility), 0.40 (fair
possibility), 0.60 (good possibility), 0.80 (high possibility),
and 1.00 (certain)
 Composite of Sales Force Opinions
 Ask salespeople to estimate their future sales
 Expert Opinion
 Producing a group estimate by pooling of individual expert’s
estimates
 Delphi method: Individual estimates are reviewed by the
company, revised, and refined
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Estimating Future Demand
Methods
 Past-Sales Analysis
 Analyze past sales influenced by a set of causal factors
 Income, marketing expenditure, price level, etc
 Market-Test Method
 Conduct actual market testing with a set of causal
factors such as different prices or ads or sales
promotions
 New product sales
 Established product sales in a new distribution channel
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