Chapter 4 Gathering Information and measuring market demand
The marketing environment is changing at an accelerating rate. Given the following changes, the
need for real time market information is greater than at any time in the past:
From local to national to global marketing
From buyer needs to buyer wants
From price to non price competition
Components of a modern marketing information system
Marketing information system consists of people ,equipment and procedures to gather, sort,
analyse, evaluate and distribute needed, timely and accurate information to marketing decision
makers.
Internal records system
The order to payment system cycle
Sales representatives dispatch orders to firm. Sales dept prepare invoices and transmits copies to
various departments. Out of stock items are back ordered. Shipped items are accompanied by
shipping to various depts. Most of these are being automated lately.
Sales information system
Provides up to minute information on sales, current accounts & customers, provides feedback
and reports.
Marketing intelligence system is a set of procedures and sources used by managers to obtain
everyday information about developments in the marketing environment.
Steps taken to improve quality of marketing intelligence:
1. Train and motivate sales force
2. Motivate distributors, retailers and other intermediaries
3. Learn about competitors by purchasing products, tradeshows
4. Setup customer advisory panel of largest or important customers
5. Purchase information from outside suppliers like AC Nielsen
6. Establish marketing information center to collect marketing intelligence
Marketing Research is the systematic design and collection, analysis and reporting of data and
findings to a specific marketing situation facing the company.
Suppliers of marketing research:
In-house marketing research dept
Engage b-school students or professors to design and carry out projects
Use the internet for public domain information at low cost
Checking out rivals through products, advtg etc
Companies also purchase research from:
Syndicated service research firms: they gather research and sell for a fee
Custom research firms: They design and carry out specific projects customized for the company
concerned
Speciality line marketing research firm: provide specialized research services. e.g.: field service
firm does only interviews.
Marketing research process
Define a problem and research objectives
Develop the research plan
Collect the information
Analyze the information
Present the findings
The Marketing Research Process
Step 1: Define the Problem and Research Objectives
Management must not define a problem too broadly or too narrowly.
Example of an ideal problem definition:
“Will offering an in-flight phone service create enough incremental preference and profit for
American Airlines to justify its cost against other possible investments American might make?”
Specific research objectives:
What are the main reasons that airline passengers place phone calls while flying?
What kinds of passengers would be the most likely to make calls?
How many passengers are likely to make calls, given different price levels?
How many extra passengers might choose American because of this new service?
How much long-term goodwill will this service add to American Airlines’ image?
How important is phone service relative to improving other factors such as flight schedules, food
quality, and baggage handling?
Not all research projects can be specific. Some research is exploratory- its goal is to shed light
on the real nature of the problem and to suggest possible solutions or new ideas. Some research
is descriptive- it seeks to ascertain certain magnitudes, such as how many people would make an
in-flight call at $25 a call. Some research is causal- its purpose is to test a cause-and-effect
relationship. For example, would passengers make more calls if the phone were located next to
their seat rather than in the aisle near the lavatory?
Step 2: Develop the Research Plan
This stage calls for developing the most efficient plan for gathering the needed information. The
cost of the research plan must be known before it is approved. Designing a research plan calls for
decisions on the data sources, research approaches, research instruments, sampling plan, and
contact methods.
Data Sources
The researcher can gather secondary data, primary data, or both. Secondary data are data that
were collected for another purpose and already exist somewhere. Primary data are data gathered
for a specific purpose or for a specific research project. Primary data is costly while secondary
data provide a starting point for research and offer the advantages of low cost and ready
availability. The WWW is a powerful source of secondary data and can provide information on
associations, business information, government information, international information.
When the needed data do not exist or are outdated, inaccurate, incomplete, or unreliable, the
researcher will have to collect primary data. Primary data can be collected by individual and
group interviews.
A customer or prospect database is an organized collection of comprehensive data about
individual customers, prospects, or suspects that is current, accessible, and actionable for
marketing purposes such as lead generation, lead qualification, sale of a product or service, or
maintenance of customer relationships.
Data warehousing and data mining techniques are becoming increasingly popular. Companies
are using data mining, a set of methods that extracts patterns from large masses of data organized
in what is called a data warehouse. A company could benefit in several ways:
Knowing which customers may be ready for a product upgrade offer
Knowing which customers might buy other products of the company
Knowing which customers would make the best prospects for a special offer
Knowing which customers have the most lifetime value and giving them more attention and
perks
Knowing which customers might tend to exit and taking steps to prevent this
Research Instruments
There are 2 main options:
Questionnaires
Mechanical Instruments
Questionnaires
Sampling plan after deciding on the research approach, the marketer researcher needs to draw up
a sampling plan. For this he needs to make 3 decisions
Sampling unit – who is to be surveyed..? The target population to be surveyed so as to have the
right kind of population representation
Sample size – how many people to be surveyed…large samples give more accurate results but it
may not always be feasible to sample the total population
Sampling procedure – how should the sample be selected to have the right kind of representation.
Probability sampling methods with confidence intervals for sampling errors
1. Contact methods how to contact the subject (people to be surveyed)
2. Mail questionnaire
3. Telephone interviews
4. Personal interviewing
5. Arranged interviews
6. Online interviewing
7. Attached with such interviews are incentives that should be given to respondents to
attract them to answer such questions
STEP 3. collect the information
Collecting the information is most expensive and prone to error.
However technology (computers etc) are making things easier and enhancing the process of data
collection and analysis.
STEP 4 Analyse the information
Develop frequency distributions, averages, measures of dispersion etc to analyse the information
collected
STEP 5 Present the findings
Present the main findings to the marketing decision makers.
Seven characteristics of a good marketing research
1. Scientific method
2. Research creativity
3. Multiple methods
4. Independence of models and data
5. Value and cost of information
6. Healthy skepticism
7. Ethical marketing
A market is the set of all actual and potential buyers of a market offer.
DEMAND MEASUREMENT
Market demand – total vol. that would be bought by a defined customer group. In a defined
geographical area in a defined tie period in a defined marketing environment under a defined
marketing program.
There is a minimum market demand which will occur without any marketing also. As we
increase marketing expenditure, demand increases and will stagnate at a point. This is an
expansible market.
If there is no effect of marketing spending, it is a non-expansible market.
Only one level of industry marketing expenditure will occur. The marketing demand
corresponding to this level is Market Forecast.
Market Potential – i the limit approached by market demand as expenditure reaches infinity for
a given marketing environment?
Company demand – i the company’s estimated share of market demands at alternate levels of
company marketing effort in a given time period.
Company sales forecasts – is the level of company sales based on a chosen marketing plan in an
assumed marketing environ.
Sales quota – is the sales goal set for a product line, company division or sales rep. It is used to
define and push for sales efforts. It kept higher than forecasts to give stretch targets.
Sales budget – is a conservative estimate of the expected volume of sales. Its used for current
purchasing, production and cashflow decisions.
Company sales potential – Is the sales limit approached by company demand as company
marketing efforts increase relative to competitors. Maximum is market potential.
ESTIMATING CURRENT DEMAND
Marketing executives need to estimate total market potential, area market potential and total
industry sales and market shares.
Total market potential
It is the maximum amount of sales that might be available to all the firms in the industry during a
given period under a given level of industry marketing effort and given environmental
conditions. A common way to estimate total market potential as follows: Estimate the potential
no. of buyers times the average quantity purchased by a buyer times the price.
Area market potential
Companies need to measure the market potentials of different cities, states and nations. Two
major methods of assessing market potentials are: the market build up method, which is used
primarily by business marketers, and the multiple factor index method which is used primarily
by consumer marketers.
Market build up method: It calls for identifying all the potential buyers in each market and
estimating their potential purchases. This method gives us accurate results if we have a list of all
potential buyers and a good estimate of what they buy.
Multiple factor index method: Like business marketers even consumer marketers also have to
estimate the area market potentials. But the consumers of consumer companies are too numerous
to be listed. Thus the most common method is the straightforward index method.
Industry sales and Market shares.
Identifying competitors and estimating their sales do this. The industry trade association will
often collect and publish total industry sales, using this information each company can evaluate
its performance against the whole industry. Another way to estimate is to buy reports from a
marketing research that audits total sales and brand sales. These audits can give a company
valuable information about its total product its total product category sales and its brand sales. It
can compare its performance to the total industry and/or any particular competitor to see whether
it is gaining or losing market share. Business marketers have typically harder time in estimating
sales than consumer goods manufacturers do.
ESTIMATING FUTURE DEMAND
Very few products lend themselves to easy forecasting. In most markets total demand and
company demand are not stable. Good forecasting becomes a key factor in company’s success.
The unstable the demand the more critical is forecast accuracy and the more elaborate is
forecasting procedure.
A three-stage procedure is used to prepare a sales forecast. They prepare a macro economic
forecast, followed by a industry forecast then by a company sales forecast.
Firms develop their forecasts internally and externally as:
Market research firms specialized forecasting firms and futurist research firms.
All forecasts are built on three information bases: what people say, what people do and what
people have done.
Survey of buyer’s intentions
Forecasting is the art of anticipating what buyers r likely to do under a given sat of conditions.
The survey looks inquires into the purchase intentions of consumer, their present and future
personal finances and their expectations about the economy. This can be analysed and major
shifts in consumer preferences can be anticipated and production schedules and marketing plans
changed accordingly.
Composite of sales force opinions.
Where buyer interviewing is impractical there companies ask their salespersons to estimate their
future sales. Each of them estimates how much each current and prospective customer will buy
of each of the company’s products. To encourage better estimating the company could supply
certain aids or incentives to sales force. The benefits are:
1. Better insights into developing trends
2. Greater confidence in sales representatives and more incentive to achieve targets.
3. Provides detailed estimates broken down by product, territory, customer and sales
representatives.
4. But some sales representatives may use them for their advantage like setting smaller
forecasts for low targets and sometimes they are not aware of the recent major economic
developments.
Expert opinion
Companies also obtain forecasts from experts including dealers, distributors, suppliers marketing
consultants and trade associations. Dealer estimates are subject to the same merits and demerits
of sales representative’s estimates. the experts estimates are done by group discussion method or
pooling of individual estimates method or Delphi method where every estimate is refined and re-
refined.
Past sales analysis
Sales forecasting is also done on the basis of past sales.
Time series analysis (breaking down the past data into trend, cycle, seasonal and erratic),
exponential smoothing (combining the past sales and recent ones by giving more weight to the
latter), statistical demand analysis (impact level of each set of casual factors e.g… income, price,
marketing expenditure etc) and economic analysis.
