Todd Hollander Market Research

While no amount of research can ever completely eliminate the risk of deploying a marketing strategy, effective marketing research should significantly reduce uncertainty and financial risk. Here are a few tips for developing a marketing research project that pays off.

Why do we bother with marketing research? Doesn’t the company’s management team have enough experience, knowledge and intuition to develop a successful marketing strategy? Do customers always know what they need or want? Doesn’t innovation create market demand once a product reaches the market? Occasionally, the answer to one or more of these questions is “Yes.” However, the cost of implementing a marketing strategy is usually so high that marketing decisions should be based on solid data, not experience or intuition.

Effective Marketing Research Reduces Risk

I readily admit that effective marketing research isn’t cheap. But it is worth the investment. In Design and Marketing of New Products (Prentice Hall, 1993), Glen Urban and John Hauser present a statistical and financial justification for marketing research which demonstrates that the cost of research is far outweighed by the cost of making erroneous decisions due to a lack of research.

Step One: Determine the Purpose of the Research

The first step in the research process is for managers and researchers to discuss and clarify the current situation and develop a clear understanding of the problem. This discussion should answer two key questions:

1. Why is the research needed?
   - Current situation
   - Nature of the problem
2. What are the objectives of the research?
   - Hypotheses to be tested

How to Formulate Hypotheses

Marketing research tends to work best in resolving small, manageable problems. To keep the research project focused on the objectives, most research questions should go through a two-stage process.

1. Frame the questions as formal problem statements. A problem statement is an interrogative sentence that asks: “What is the relation between variable A (e.g., sales volume) and variable B (e.g., a 5% price increase)?”
2. Reconstruct the interrogative sentence into a hypothesis in the form of a declarative sentence: “There is an inverse relationship between variable A and variable B.”

The purpose of the hypothesis statement is to aid in creating an action standard for the research results. For example: “If a 5% price increase causes less than a 2% decrease in sales, we should implement the price increase.”

In order for the problem statements and hypotheses to be useful in quantitative market research, three criteria must be met.

1. The variables must be clearly defined.
2. The variables must be measurable.
3. The variables must be testable in the field.

Step Two: Engage Potential Research Suppliers

Once the specific research objectives and hypotheses have been agreed upon, most organizations begin to interact with potential research suppliers. Although it is frequently assumed that the next step is to send out a Request for Proposal (RFP), during the initial phases of scoping a project the RFP is often the wrong tool for both the research buyer and potential suppliers. (For more information, see “How to engage market research suppliers in the planning of your research - a Win-Win approach.”)

The Bottom Line

Marketing research can never completely eliminate risk. However, when done properly, it can greatly reduce risk and increase the odds of marketing success.

This entry was posted on Thursday, December 20th, 2007 at 5:12 pm and is filed under Advice/How-To. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.