The Significance of Marketing Research - Term Paper Example

"Marketing research is touted as the key to better decision-making, the mark of sophisticated professional marketers. The popular belief is that the more money spent for marketing research, the less chance for a bad decision (Hartley, 2004)." Discuss. THE SIGNIFICANCE OF MARKETING RESEARCH Business managers and management professionals worldwide today understand and appreciate the significance of strategic marketing decision-making towards ensuring profitability and success. And, in the age of the information revolution, the quality of strategic decision-making is greatly influenced by the quality of information available for analysis and appropriate decision-making. The need for quality information, needless to say, suggests the significance of marketing research in strategic marketing decision-making and in ensuring business success, particularly so in the present business environments characterised by the pressures of global competition and fast paced changes in information and communication technologies as well as constantly evolving marketplaces and consumer choices. There is a growing consensus among management professionals on the role and significance of research in marketing decision-making. While there is a popular belief that more money spent on marketing research may reduce the chance of a bad decision, business owners and marketers are often esoteric, [Chiba, 2005] and even critical of marketing research, considered costly in terms of money and time and lacking accountability and precision, being only a recommended action. [Chee and Harris, 1998; p. 193] The paper attempts to understand and establish the significance of marketing research in decision-making and for business success. As a prelude to the topic, it may be imperative to define and understand the scope of marketing research. Marketing Research - Definition and Scope The European Society for Opinion and Marketing Research defines as market research as "the systematic collection and objective recording, classification, analysis and presentation of data concerning the behaviour, needs, attitudes, opinions, motivations etc., of individuals and organizations (commercial enterprises, public bodies etc.) within the context of their economic, social, political and everyday activities" [Cited Cannon, 1996; p.100] According to Bennett's Dictionary of Marketing Terms, marketing research provides information for identifying and defining marketing opportunities and problems; generating, refining and evaluating marketing actions, monitor marketing performance and improve understanding of marketing as a process. It also designs the method for collecting information; manages and implements the data collection process, analyses the results; and communicates the findings and their implications. [Bennett, 1998; p. 117-18] It is significant to note that the definitions, while placing an emphasis on the measurement and analysis of markets, goes beyond the confines of market research to solve a particular company's marketing problem, encompassing the broad field of marketing. [Cannon, 1996; p.100] Accordingly marketing research essentially encompasses the '4 Ps' of marketing; Lancaster and Massingham present the major types of research, as including: 1. Marketing and sales research, which encompasses Determination of market size of both developed and new markets Identification of market characteristics and segments Identification of market trends Sales forecasting Obtaining information on customers and potential customers Obtaining information on competitors 2. Product research, which covers Generation of new product ideas Product concept testing Product testing Test marketing of products Packaging research focusing on different types of packaging 3. Pricing research focusing on Identifying the relationship between a product or service's price and demand 4. Marketing Communications research covering Effectiveness of advertisement campaigns and marketing communications Media selection research Copy testing Sales territory planning 5. Distribution research covering Warehouse location research Retail outlet location research [Lancaster and Massingham; 1999; p. 113-114] The types of research imply the broad scope of marketing research; as marketing has transformed from a function of business to the function of business, the scope of marketing research has also increased significantly. The emergence of global markets and strategic marketing decision-making has extended the scope of marketing research to include industry or corporate strategy research and market or business strategy research. [Chee and Harris, 1998; p. 193-194] The scope of these two researches include: Industry or Corporate Strategy Research - This provides information to decision makers concerned with corporate level strategies. The main focus of the research is on the competitive environment in which the company operates such as corporate or business unit portfolio studies; manufacturing cost studies, economic and political trend analysis, strengths and weaknesses of competition, resource and labour force studies etc. [Chee and Harris, 1998; p. 193-194] Market or Business Strategy research - Provides information to those concerned with formulating business strategies of the firm. The focus of the research and information is on the markets in which the various strategic business units are operating in, and the emphasis is on the analysis of competitor actions in specific markets and the factors affecting market sales and market shares, supply and demand trends etc.[Chee and Harris, 1998; p. 194] Significance of Marketing Research in Decision- Making Researchers are generally in agreement regarding the significance of marketing research in business and marketing decision-making. [Chee and Harris, 1998; Chiba, 2005, Cannon; 1996] According to Paul Peter and James Donnelley, in a highly competitive business environment, the success or even survival of a firm often depends on "the marketing manager's ability to make sound decisions, to outguess competitors, to anticipate consumer needs, to forecast business conditions and to plan for company growth." [Peter and Donnelley, 1994; p. 46] There is little doubt that information is required to identify marketing problems and opportunities, as well as in formulating the organisation's response to problems and opportunities that have been identified. Marketing research, as demonstrated by its scope, provides this information and enhances the decision-making capabilities of business owners and marketers, in both setting the business objectives and in achieving the objectives through strategic planning. According to Robert Shaw and David Merrick, due to their conventional marketing wisdom marketers often end up deciding based on gut instinct. [Cited Goh, 2006] These decisions may go wrong for many reasons attributable to the specifics and or complexities relating to product, consumer, competitor or the market situation. Muder Chiba observes that "the chances of making an error in judgement is mainly because of dealing with consumers who the marketer doesn't know, in places he's never seen, in situations he's never been." According to him marketing research helps managers in reducing the chances of making an error. [ Chiba, 2005] Yet, it is important to know that marketing research is essentially "an aid to decision-making and not a substitute for it," [Peter and Donnelley, 1994; p. 44] implying that while marketing research does not make decisions by itself, it can substantially increase the probability that the best decision will be made. In making appropriate decisions, the marketing managers and concerned decision-makers needs to prudently apply their knowledge and experience as well as consider other factors that are explicitly not mentioned in the research project. The application of sound judgment in interpreting the results of the research is a key factor in decision-making, perhaps more significant than the research itself [Deshpande and Zaltman, 1987; p. 115-17] The following cases illustrate the significance of marketing research in marketing decision-making: The Eastman Kodak Company's disc camera introduced in 1982, is a classic case of successful marketing research. Knowing the potential market of amateur photographers, the company's technical researchers were engaged to research and analyse 10,000 photos to provide information on the kind of things the users were doing wrongly. The study led to a number of design ideas for the Kodak disc camera that helped to eliminate almost one half of the out-of-focus and underexposed shots. [Peter and Donnelley, 1994; p. 45] The case of Coca- Cola - the introduction of New Coke, a new formulation of Coca-Cola, in 1985, to beat the competition from Pepsi is a good example of faulty marketing research process and the inability of Coke executives to use sound judgement in interpreting the research results. During the design of the research, instead of focusing on the demographic of customers, Coca-Cola instead focused on the nature of the product itself - the market reaction to the product proved contrary. [Peter and Donnelley, 1994; p. 45] The case of Ford Edsel, Ford's automobile model, developed with the belief of being the best vehicle ever produced by the company and introduced after World War II and the recent case of WAP mobile telephone manufacturers are other important cases, where manufacturers/suppliers have failed to consult the market through necessary research before making marketing decisions. In both the cases, though the products were more technologically advanced, the market requirement was low. [Cartright, 2002; p. 69] It is significant to know that marketers and organisations often tend to downplay or do away with marketing research for a variety of reasons, and sometimes they are justified in doing so. Criticisms to marketing research range from lack of accountability, high costs in terms of money and time, too much ritual in the research process and statistics and above all that it can only recommend action and lacks precision. [Chee and Harris, 1998; p. 193] Muder Chiba, after considering the cost implications suggest that the decision to research or not itself is strategic in nature and needs to see the benefits of research; he asserts that "the cost of the research in terms of both the time and the actual cost must be weighed against the cost of decision and the likelihood of research improving the decision-making quality." [Chiba, 2005] While analysing the role and significance of marketing research, it is important to know the cost as well as other implications, which calls for an understanding of the process and sources of marketing research data. Marketing Research Process The marketing research process may be explained by the Five P approach, as briefed below: Purpose of research-the first P, pertains to the determination of the purpose of research, by clearly stating the nature of the problem. This may involve interviewing business executives, reviewing records and studying existing information. Plan of the Research - the second P, pertains to the preparation of a detailed plan that determine the who, what, when, where and how of the research study. As a first step to the plan, the type of data that will be required is to be assessed. Marketing research essentially uses secondary data - information that has been previously collected for some other purpose - or primary data -- information collected from original sources through interviews, observation, experimentation, case study, questionnaires survey to solve a specific marketing problem at hand. Though a detailed discussion of the different sources of primary and secondary data may be beyond the scope of this discussion, it is significant to note that while secondary data are economical and readily available, primary data sourcing can be significantly expensive and time consuming. Yet, in business decisions requiring accurate market information, the need for primary data is recommended. Performance of research - the third P, relates to the actual collection and recording of the data, the cardinal rule being to obtain maximum amount of useful information Processing of research data - the fourth P, includes the preparation of data for analysis and the actual analysis of the data Preparation of research report - the fifth P, relates to the preparation of a complete statement showing the results of the research project. [Peter and Donnelley, 1994; p. 46-52] Each aspects of the marketing research process and the extended scope and nature of marketing research suggests the advanced skills and potential costs involved in undertaking marketing research. Although the "process of marketing research begins and ends with the marketing manager," many of the technical aspects of marketing research and many a times the process itself is often required to be delegated to experts in order to ensure accuracy. [Peter and Donnelley, 1994; p. 46] It is common knowledge that accurate information on market situations enables better decisions and reduces risks in business operations; the more detailed and exact the information, the risk of bad or wrong decisions is lesser. As suggested, detailed information covering all aspects of marketing and guaranteeing accuracy of information, often involves the engagement of marketing research experts and thus presents significant cost implications in terms of both money and time. [Lancaster and Massingham; 1999; p. 115] Hence there is a popular belief that the more money spend on marketing research the less is the chance of bad decision and risk in business operations. While the popular notion may be true generally, it may not be always wise to spend unlimitedly on marketing research. As suggested earlier and as exemplified by the Coca Cola case, good decision-making does not necessarily ensue expensive market research programmes; it requires the sound judgement and interpretation of research results by marketers. Muder Chiba's discussion also suggests that undertaking marketing research and spending more and more money in research may not be always wise. The marketer needs to consider the cost implications of both the erroneous decision and undertaking marketing research to ensure correctness of decisions. According to him the decision to conduct research at every stage of the product/brand/market development process would be valid only if the error in decision making is likely to prove very costly either in terms of customers lost or launch momentum loss or corporate objectives loss. [Chiba, 2005] Conclusion Marketing research provides a wide range of information on key marketing issues as well as opportunities, facilitating better-informed decision making in marketing. Due to the vast scope and specialised nature and skills required for marketing research and its potential implications to successful business operation, it is often thought that the more money a company spends in marketing research, the better will be its decisions and business performance. While this may be generally true, it is not always the case. Spending more money in marketing research by itself does not guarantee good decision-making; it requires marketers to use sound judgment of the research results based on perceptive knowledge and experience of business situations. Also, even the decision to undertake research, and spending money on it, is strategic in nature and needs considerations of the cost implications. Bibliography 1. Bennett, P.D. (Ed) 1998. Dictionary of Marketing Terms Chicago: American Marketing Association 2. Cannon T. 1996. Basic Marketing: Principles and Practice 4th Edition New York: Cassell Publishers Limited 3. Cartwright R. 2002 Mastering Marketing Management Palgrave Master Series New York: Palgrave 4. Chee H. & Harris R. 1998. Global Marketing Strategy London: Financial Times, Pitman Publishing 5. Chiba, M. 2005 " To Research or Not" Strategic Marketing Available at http://www.etstrategicmarketing.com/strategic/striss.html Accessed 04/01/06 6. Deshpande R. & Zaltman G. 1987 " A Comparison of Factors Affecting Use of Marketing Information in Consumer and Industrial Firms" Journal of Marketing Research Issue: February: 114-119 7. Goh, Dr, S.T.H. "Making Wise Marketing Decision" Business: Book Review The Star Online Available at: http://biz.thestar.com.my/news/story.aspfile=/2006/1/2/business/12766905&sec=business Accessed 04/01/06 8. Lancaster G. & Massingham L. 1999. Essentials of Marketing : Texts and Cases 3rd Edition. London: McGraw Hill Publishing Co. 9. Peter J. P. & Donnelley J.H. Jr. 1994. A Preface to Marketing Management Illinois: Richard D. Irwin Inc. Read More