4 CONDUCTING MARKETING RESEARCH AND FORECASTING DEMAND

DETAILED CHAPTER OUTLINE In addition to monitoring a changing marketing environment, marketers also need to develop specific knowledge about their particular markets. Good marketers want information to help them interpret past performance as well as plan future activities. Marketers need timely, accurate, and actionable information on consumers, competition, and their brands. MARKETING RESEARCH SYSTEM Marketing managers often commission formal marketing studies of specific problems and opportunities.

A) They may request a(n):

1) Market survey.

2) Product-preference test.

3) a!es forecast "y re#$on.

%) Advert$s$n# eva!uat$on.

&) 't $s the (o" of the market$n# researcher to produce $ns$#ht $nto the customer)s att$tudes and "uy$n# "ehav$or.

*) +e def$ne marketing research as the systemat$c des$#n, co!!ect$on, ana!ys$s, and report$n# of data and f$nd$n#s re!evant to a spec$f$c market$n# s$tuat$on fac$n# the company.

-) Most !ar#e compan$es have market$n# research departments.

.) At sma!!er compan$es, market$n# research $s often carr$ed out "y everyone $n the company.

/) *ompan$es norma!!y "ud#et market$n# research at one to t0o percent of company sa!es.

1) Market$n# research f$rms fa!! $nto three cate#or$es:

1) Syndicated-service research firms.

2) Custom marketing research firms.

3) Specialty-line marketing research firms.

2) ma!! compan$es can h$re the serv$ces of a market$n# research f$rm or conduct research $n creat$ve and afforda"!e 0ays, such as:

1) Engaging students or professors to design and carry out projects.

2) Using the Internet.

3) Checking out rivals.

') Most compan$es use a com"$nat$on of market$n# research resources to study $ndustr$es, compet$tors, aud$ences, and channe! strate#$es.

eview !ey "efinitions here# marketing research, syndicatedservice research firms, custom marketing research firms, and specialty-line marketing research firms THE MARKETING RESEARCH PROCESS $ffective marketing research involves si% steps. &igure '.( shows these si% steps. Step 1: Define the Prob e!" the De#i$ion A tern%ti&e$" %n' the Re$e%r#h Ob(e#ti&e$ Marketing management must be careful not to define the problem too broadly or too narrowly for the marketing researcher.

A) ome research $s e3p!oratory4$ts #oa! $s to shed !$#ht on the rea! nature of the pro"!em and to su##est poss$"!e so!ut$ons or ne0 $deas.

&) ome research $s descr$pt$ve4$t seeks to ascerta$n certa$n ma#n$tudes.

*) ome research $s causa!4$ts purpose $s to test a cause-andeffect re!at$onsh$p.

Step ): De&e op the Re$e%r#h P %n )he second stage of the marketing research calls for developing the most efficient plan for gathering the needed information.

A) The market$n# mana#er needs to kno0 the cost of the research p!an "efore approv$n# $t.

&) -es$#n$n# a research p!an ca!!s for dec$s$ons on the:

1) -ata sources.

2) 5esearch approaches.

3) 5esearch $nstruments.

%) amp!$n# p!an.

6) *ontact methods.

D%t% So*r#e$ )he research can gather secondary data, primary data, or both.

A) Secondary data are data that 0ere co!!ected for another purpose and a!ready e3$st.

&) *rimary data are data fresh!y #athered for a spec$f$c purpose or for a spec$f$c research pro(ect.

*) 5esearchers usua!!y start out the$r $nvest$#at$on "y e3am$n$n# secondary data.

-) econdary data prov$des a start$n# po$nt and offers the advanta#es of !o0 cost and ready ava$!a"$!$ty.

178 *hapter %: *onduct$n# Market$n# 5esearch and /orecast$n# -emand

.) Most market$n# research pro(ects $nvo!ve some pr$mary data co!!ect$on.

eview !ey "efinitions here# secondary data and primary data Re$e%r#h Appro%#he$ *rimary data can be collected in five main ways# through observation, focus groups, surveys, behavioral data, and e%periments.

Ob$er&%tion% Re$e%r#h

A) /resh data can "e #athered "y o"serv$n# the re!evant actors and sett$n#s.

+o#*$ Gro*p Re$e%r#h

A) A focus group $s a #ather$n# of s$3 to ten peop!e 0ho are carefu!!y se!ected "ased on certa$n demo#raph$c, psycho#raph$c, or other cons$derat$ons and "rou#ht to#ether to d$scuss var$ous top$cs of $nterest at !en#th.

&) A profess$ona! research moderator prov$des quest$ons and pro"es "ased on a d$scuss$on #u$de or a#enda to ensure that the r$#ht mater$a! #ets covered.

*) Moderators attempt to track do0n potent$a!!y usefu! $ns$#hts as they try to d$scern the rea! mot$vat$ons of consumers and 0hy they are say$n# and do$n# certa$n th$n#s.

-) The sess$ons are typ$ca!!y recorded.

S*r&e, Re$e%r#h Companies undertake surveys to learn about people+s knowledge, beliefs, preferences, and satisfaction, and to measure these magnitudes in the general population. -eh%&ior% D%t%

Customers leave traces of their purchasing behavior in store scanning data, catalog purchases, and customer databases. Much can be learned by analy,ing these data.

A) *ustomers) actua! purchases ref!ect preferences and often are more re!$a"!e than statements offered to market$n# researchers.

E.peri!ent% Re$e%r#h )he most scientifically valid research is e%perimental research.

A) The purpose of e3per$menta! research $s to capture cause-andeffect re!at$onsh$ps "y e!$m$nat$n# compet$n# e3p!anat$ons of the o"served f$nd$n#s.

&) .3per$ments ca!! for:

1) e!ect$n# matched #roups of su"(ects.

2) u"(ect$n# them to d$fferent treatments.

3) *ontro!!$n# e3traneous var$a"!es.

%) *heck$n# 0hether o"served response d$fferences are stat$st$ca!!y s$#n$f$cant.

Re$e%r#h In$tr*!ent$

Marketing researchers have a choice of three main research instruments in collecting primary data# -uestionnaires, -ualitative measures, and mechanical devices. /*e$tionn%ire$ . -uestionnaire consists of a set of -uestions presented to respondents.

A) &ecause of $ts f!e3$"$!$ty, the quest$onna$re $s "y far the most common $nstrument used to co!!ect pr$mary data.

&) 9uest$onna$res need to "e carefu!!y deve!oped, tested, and de"u##ed "efore "e$n# adm$n$stered.

1) The researcher carefu!!y chooses the quest$ons, 0ord$n#, and sequence.

2) The form of the quest$on can $nf!uence the response.

3) Market$n# researchers used "oth c!osed-end and open-end quest$ons.

)able '.( provides e%amples of both types of -uestions. /*% it%ti&e Me%$*re$ Some marketers prefer more -ualitative methods for gauging consumer opinions because consumer actions do not always match their answers to survey -uestions.

A) /ualitative research techni-ues are re!at$ve!y unstructured measurement approaches that perm$t a ran#e of poss$"!e responses.

&) 9ua!$tat$ve research techn$ques are a creat$ve means of ascerta$n$n# consumer percept$ons that may other0$se "e d$ff$cu!t to uncover.

*) &ecause of the freedom afforded "oth researchers $n the$r pro"es and consumers $n the$r responses, qua!$tat$ve research can often "e a usefu! f$rst step $n e3p!or$n# consumers) "rand and product percept$ons.

-) There are a!so dra0"acks to qua!$tat$ve research:

1) The $ndepth $ns$#hts have to "e tempered "y the fact that the samp!e s$:e $s !$m$ted.

2) 9uest$on of $nterpretat$on.

eview !ey "efinitions here# focus groups and -ualitative research techni-ues

Me#h%ni#% De&i#e$ Mechanical devices are occasionally used in marketing research.

A) 1a!vanometers.

&) Tach$stoscope.

*) Aud$ometers.

S%!p in0 P %n .fter deciding on the research approach and instruments, the marketing researcher must design a sampling plan. )his calls for three decisions#

A) Sampling unit# 0ho is to be surveyed1 -ef$ne the tar#et popu!at$on that 0$!! "e samp!ed.

&) Sample si,e# 2ow many people should be surveyed1 ;ar#e samp!es #$ve more re!$a"!e resu!ts than sma!! samp!es.

*) Sampling procedure# 2ow should the respondents be chosen1 Pro"a"$!$ty samp!$n# a!!o0s the ca!cu!at$on of conf$dence !$m$ts for samp!$n# error.

)able '.3, part . shows the three types of probability sampling. )able '.3, part 4, describes three types of non-probability samples. Cont%#t Metho'$ 5nce the sampling plan has been determined, the marketing researcher must decide how the sub6ect should be contacted# mail, telephone, personal, or online interview.

M%i /*e$tionn%ire )he mail -uestionnaire is the best way to reach people who would not give personal interviews or whose responses might be biased or distorted by the interviewers.

A) Ma$! quest$onna$res requ$re s$mp!e and c!ear!y 0orded quest$ons.

&) The response rate $s usua!!y !o0 and<or s!o0.

Te ephone Inter&ie1$ )elephone interviewing is the best method for gathering information -uickie.

A) The $nterv$e0er $s a!so a"!e to c!ar$fy quest$ons $f respondents do not understand them.

&) The response rate $s typ$ca!!y h$#her than $n the case of ma$!ed quest$onna$res.

*) The ma$n dra0"ack $s that the $nterv$e0s have to "e short and not too persona!.

-) The =-o >ot *a!!? re#$stry.

2@ 1 *hapter-"y-*hapter 'nstruct$ona! Mater$a! Per$on% Inter&ie1

*ersonal interviewing is the most versatile method.

A) The $nterv$e0er can ask more quest$ons and record add$t$ona! o"servat$ons a"out the respondent.

&) 't $s the most e3pens$ve method.

*) u"(ect to $nterv$e0er "$as or d$stort$on.

-) Persona! $nterv$e0$n# takes t0o forms:

1) .rranged interviews.

2) Intercept interviews.

eview !ey "efinitions here# arranged and intercept interviews On ine Inter&ie1 )here is an increase in the use of online methods. )here are so many ways to use the 78et9 to do research.

A) A company can $nc!ude a quest$onna$re on $ts +e" s$te.

&) P!ace a "anner on some frequent!y v$s$ted s$te such as AahooB

*) The company can sponsor a chat room or "u!!et$n "oard.

-) 2ost a rea!-t$me pane! or v$rtua! focus #roup.

.) ;earn a"out ho0 $nd$v$dua!s 0ho v$s$t $ts s$te "y fo!!o0$n# ho0 they clickstream throu#h the +e" s$te.

/) Cn!$ne product test$n# $s a!so #ro0$n# and prov$d$n# $nformat$on much faster than trad$t$ona! market$n# research techn$ques used to deve!op ne0 products.

Step 2: Co e#t the Infor!%tion )he data collection phase of marketing research is generally the most e%pensive and the most prone to error.

A) 'n the case of survey, four ma(or pro"!ems ar$se:

1) ome respondents 0$!! not "e at home and must "e contacted a#a$n and a#a$n.

2) Cther respondents 0$!! refuse to cooperate.

3) Cthers 0$!! #$ve "$ased or d$shonest ans0ers.

%) ome $nterv$e0ers 0$!! "e "$ased or d$shonest.

&) -ata co!!ect$on methods are rap$d!y $mprov$n# thanks to computers and te!ecommun$cat$ons.

*) ome research f$rms $nterv$e0 from a centra!$:ed !ocat$on and enter $nformat$on d$rect!y $nto a computer.

2@2 *hapter %: *onduct$n# Market$n# 5esearch and /orecast$n# -emand Step 3: An% ,4e the Infor!%tion )he ne%t-to-last step in the process is to e%tract findings from the collected data. )he researcher tabulates the data and develops fre-uency distributions.

A) Avera#es and measures of d$spers$on are computed for the ma(or var$a"!es.

&) The researcher 0$!! a!so app!y some advanced stat$st$ca! techn$ques and dec$s$on mode!s $n hope of d$scover$n# add$t$ona! f$nd$n#s.

Step 5: Pre$ent the +in'in0$ )he researcher should present findings that are relevant to the ma6or marketing decisions facing management. Step 6: M%7e the De#i$ion )he managers who commissioned the research need to weigh the evidence. )able '.: summari,es the seven characteristics of good marketing research.

A) A #ro0$n# num"er of or#an$:at$ons are us$n# a market$n# dec$s$on support system to he!p market$n# man#ers make "etter dec$s$ons.

&) A marketing decision support system ;M"SS< $s def$ned as a coord$nated co!!ect$on of data, systems, too!s, and techn$ques 0$th support$n# soft0are and hard0are, "y 0h$ch, an or#an$:at$on #athers, $nterprets re!evant $nformat$on from "us$ness and env$ronment, and turns $t $nto a "as$s for market$n# act$on.

*) A c!ass$c e3amp!e $s the *A;;P;A> mode! that he!ps sa!espeop!e determ$ne the num"er of ca!!s to make, per per$od, to each prospect and current c!$ents.

eview !ey "efinitions here# marketing decision support system O&er#o!in0 -%rrier$ to the U$e of M%r7etin0 Re$e%r#h In spite of the rapid growth of marketing research, many companies still fail to use it sufficiently or correctly, for several reasons#

A) A narro0 concept$on of the research.

&) Dneven ca!$"er of researchers.

*) Poor fram$n# of the pro"!em.

-) ;ate and occas$ona!!y erroneous f$nd$n#s.

.) Persona!$ty and presentat$ona! d$fferences.

2@ 3 *hapter-"y-*hapter 'nstruct$ona! Mater$a! MEASURING MARKETING PRODUCTI8ITY .n important task of marketing research is to assess the efficiency and effectiveness of marketing activities.

A) Marketers, $ncreas$n#!y, are "e$n# he!d accounta"!e for the$r $nvestments and must "e a"!e to (ust$fy market$n# e3pend$tures to sen$or mana#ement.

&) Market$n# research can he!p address th$s $ncreased need for accounta"$!$ty.

*) T0o comp!ementary approaches to measure market$n# product$v$ty are:

1) Market$n# metr$cs to assess market$n# effects.

2) Market$n# m$3 mode!$n# to est$mate causa! re!at$onsh$ps and ho0 market$n# act$v$t$es affects outcomes.

M%r7etin0 Metri#$ Marketing metrics is a set of measures that help firms to -uantify, compare, and interpret marketing performance.

A) Market$n# metr$cs can "e used "y "rand mana#ers to des$#n market$n# pro#rams.

&) Market$n# metr$cs can "e used "y sen$or mana#ers to dec$de on f$nanc$a! a!!ocat$ons.

*) Many market$n# metr$cs re!ate to customer-!eve! concerns such as the$r att$tudes and "ehav$or.

-) Cthers re!ate to "rand-!eve! concerns such as market share, re!at$ve pr$ce prem$um, or prof$ta"$!$ty.

)able '.' is a sample marketing metrics .

.) /$rms are a!so emp!oy$n# or#an$:at$ona! processes and systems to make sure that the va!ue of a!! of these d$fferent metr$cs $s ma3$m$:ed "y the f$rm.

/) A summary set of re!evant $nterna! and e3terna! measures can "e assem"!ed $n a marketing dashboard for synthes$s and $nterpretat$on.

1) As $nput to the market$n# dash"oard, compan$es can prepare t0o market-"ased scorecards that ref!ect performance and prov$de poss$"!e ear!y 0arn$n# s$#na!s.

2) A customer-performance scorecard records ho0 0e!! the company $s do$n# year after year on such customer-"ased measures.

1) >orms shou!d "e set for each measure.

)able '.= shows such customer-based measures.

') The second measure $s ca!!ed a stakeholder-performance scorecard.

1) A#a$n, norms shou!d "e set for each measure and mana#ement shou!d take act$on 0hen performance fa!!s outs$de of these norms.

Me%$*rin0 M%r7etin0 P %n Perfor!%n#e Marketers today have better marketing metrics for measuring the performance of marketing plans. )hey can use four tools to check on plan performance# sales analysis, market-share analysis, marketing e%pense-to-sales analysis, and financial analysis. S% e$ An% ,$i$ Sales analysis consists of measuring and evaluating actual sales in relation to goals. )wo specific tools are used in sales analysis.

A) Sales-variance analysis measures the re!at$ve contr$"ut$on of d$fferent factors to a #ap $n sa!es performance.

&) Microsales analysis !ooks at spec$f$c products, terr$tor$es, and so forth that fa$!ed to produce e3pected sa!es.

eview !ey "efinitions here# marketing metrics, marketing dashboard, customer-performance scorecard, stakeholderperformance scorecard, sales-variance analysis, and microsales analysis M%r7et9Sh%re An% ,$i$ Company sales do not reveal how well the company is performing relative to competitors. &or this purpose, management needs to track its market share. Market share can be measured in three ways#

A) 5verall market share $s the company)s sa!es e3pressed as a percenta#e of tota! market share.

&) Served market share $s $ts sa!es e3pressed as a percenta#e of the tota! sa!es to $ts served market.

1) 'ts served market $s a!! the "uyers 0ho are a"!e and 0$!!$n# to "uy the product.

2) erved market share $s a!0ays !ar#er than overa!! market share.

*) elative market share can "e e3pressed as market share $n re!at$on to $ts !ar#est compet$tor.

-) *onc!us$ons from market share ana!ys$s are su"(ect to certa$n qua!$f$cat$ons:

1) The assumpt$on that outs$de forces affect a!! compan$es $n the same 0ay $s often not true.

2) The assumpt$on that a company)s performance shou!d "e (ud#ed a#a$nst the avera#e performance of a!! compan$es $s not a!0ays va!$d.

3) 'f a ne0 f$rm enters the $ndustry, then every e3$st$n# f$rm)s market share m$#ht fa!!.

%) omet$mes a market-share dec!$ne $s de!$"erate!y en#$neered to $mprove prof$ts.

6) Market share can f!uctuate for many m$nor reasons.

.) A usefu! 0ay to ana!y:e market-share movement $s $n terms of four components: Cvera!!

Market E *ustomer F *ustomer F *ustomer F Pr$ce hare penetrat$on !oya!ty se!ect$v$ty se!ect$v$ty +here:

1) Customer penetration $s the percenta#e of a!! customers 0ho "uy from the company.

2) Customer loyalty $s the purchases from the company "y $ts customers e3pressed as a percenta#e of the$r tota! purchases from a!! supp!$ers of the same products.

3) Customer selectivity $s the s$:e of the avera#e customer purchase from the company e3pressed as a percenta#e of the s$:e of the avera#e customer purchase from an avera#e company.

%) *rice selectivity $s the avera#e pr$ce char#ed "y the company e3pressed as a percenta#e of the avera#e pr$ce char#ed "y a!! compan$es.

M%r7etin0 E.pen$e9to9S% e$ An% ,$i$ .nnual plan control re-uires making sure that the company is not overspending to achieve its goals.

A) The key rat$o to 0atch $s marketing e%pense-to-sales ratio:

&) The per$od-to-per$od f!uctuat$ons $n each rat$o can "e tracked on a control chart:

&igure '.3 shows a control chart.

*) The "ehav$or of success$ve o"servat$ons even 0$th$n the upper and !o0er contro! !$m$ts shou!d "e 0atched.

-) >ote that $n /$#ure %.2 the !eve! of e3pense-to-sa!es rat$o rose stead$!y from the n$nth per$od on0ard.

+in%n#i% An% ,$i$ )he e%pense-to-sales ratios should be analy,ed in an overall financial framework to determine how and where the company is making its money. Marketers are increasingly using financial analysis to find profitable strategies beyond sales building.

A) Mana#ement uses f$nanc$a! ana!ys$s to $dent$fy factors that affect the company)s rate of return on net worth.

&igure '.: shows the main factors of financial control.

&) The return on net 0orth $s the product of t0o rat$os, the company)s return on assets, and $ts financial leverage.

*) The return on assets $s the product of t0o rat$os, the profit margin, and the asset turnover:

-) The market$n# e3ecut$ve can seek to $mprove performance $n t0o 0ays:

1) 'ncrease the prof$t mar#$n "y $ncreas$n# sa!es or decreas$n# costs.

2) 'ncrease the asset turnover "y $ncreas$n# sa!es or reduc$n# assets that are he!d a#a$nst a #$ven !eve! of sa!es.

eview !ey "efinitions here# overall market sales, served market share, relative market share, customer penetration, customer loyalty, customer selectivity, price selectivity, marketing e%pense-to-sales ratio, control chart, rate of return on net worth, return on assets, financial leverage, profit margin, and asset turnover Profit%bi it, An% ,$i$

A) *ompan$es shou!d measure the prof$ta"$!$ty of:

1) Products.

2) Terr$tor$es.

3) *ustomer #roups.

%) e#ments.

6) Trade channe!s.

G) Crder s$:es.

&) Th$s $nformat$on can he!p mana#ement determ$ne 0hether any products or market$n# act$v$t$es shou!d "e e3panded, reduced, or e!$m$nated.

M%r7etin09Profit%bi it, An% ,$i$

)able '.> shows the *?@ statement for the lawnmower e%ample. Step 1: I'entif,in0 +*n#tion% E.pen$e$

A) Assume that the e3penses !$sted $n Ta"!e %.G are $ncurred to se!! the product, advert$se $t, pack and de!$ver $t, and "$!! and co!!ect for $t.

&) The f$rst task $s to measure ho0 much of each e3pense 0as $ncurred $n each act$v$ty.

)able '.A shows the allocation of the salary e%pense to these four activities. Step ): A$$i0nin0 +*n#tion% E.pen$e$ to M%r7etin0 Entitie$

A) The ne3t task $s to measure ho0 much funct$ona! e3pense 0as assoc$ated 0$th se!!$n# throu#h each type of channe!.

)able '.B shows the amount of sales made in each channel.

&) Advert$s$n# e3pense can "e avera#ed across a!! one hundred ads.

*) Packa#$n# and de!$very e3pense $s a!!ocated accord$n# to the num"er of orders p!aced "y each type of channe!, the same for "$!!$n#, and co!!ect$on e3penses.

Step 2: Prep%rin0 % Profit %n' Lo$$ St%te!ent for E%#h M%r7etin0 Entit, . profit-and-loss statement can now be prepared for each type of channel. )able '.C shows this profit and loss statement per channel.

A) Ta"!e %.7 sho0s that the f$rm $s !os$n# money throu#h the #arden supp!y stores and $s mak$n# a!most a!! of $ts money from the department stores.

Deter!inin0 Corre#ti&e A#tion In general, marketing-profitability analysis indicates the relative profitability of different channels, products, territories, or other marketing entities. Dire#t 8er$*$ +* Co$tin0 @ike all information tools, marketing-profitability analysis can lead or mislead marketing e%ecutives, depending on how well they understand its methods and limitations.

A) The $ssue of 0hether to a!!ocate fu!! costs or on!y d$rect and tracea"!e costs $n eva!uat$n# a market$n# ent$ty)s performance $s a far more ser$ous (ud#menta! e!ement affect$n# prof$ta"$!$ty ana!ys$s.

&) Three types of costs have to "e d$st$n#u$shed:

1) "irect costsDthese are costs that can "e ass$#ned d$rect!y to the proper market$n# ent$t$es.

2) )raceable common costsDthese are costs that can "e ass$#ned on!y $nd$rect!y, "ut on a p!aus$"!e "as$s to the market$n# ent$t$es.

3) 8on-traceable common costsDthese are common costs 0hose a!!ocat$on to the market$n# ent$t$es $s h$#h!y ar"$trary.

*) >o one d$sputes $nc!ud$n# d$rect costs $n market$n# cost ana!ys$s.

-) There $s a sma!! amount of controversy a"out $nc!ud$n# tracea"!e common costs.

.) The ma(or controversy concerns 0hether the non-tracea"!e common costs shou!d "e a!!ocated to the market$n# ent$t$es.

1) uch a!!ocat$on $s ca!!ed the full-cost approach and $t ar#ues that a!! costs must u!t$mate!y "e $mputed $n order to determ$ne true prof$ta"$!$ty.

2) Th$s ar#ument confuses the use of account$n# for f$nanc$a! report$n# 0$th $ts use for mana#er$a! dec$s$on-mak$n#.

/) /u!! cost$n# has three ma(or 0eaknesses:

1) The re!at$ve prof$ta"$!$ty of d$fferent market$n# ent$t$es can sh$ft rad$ca!!y 0hen one ar"$trary 0ay to a!!ocate non-tracea"!e common costs $s rep!aced "y another.

2) The ar"$trar$ness demora!$:es mana#ers, 0ho fee! that the$r performance $s (ud#ed adverse!y.

3) The $nc!us$on of non-tracea"!e common costs cou!d 0eaken efforts at rea! cost contro!.

1) *ompan$es are sho0$n# a #ro0$n# $nterest $n us$n# market$n#prof$ta"$!$ty ana!ys$s or $ts "roader vers$on, act$v$ty-"ased cost account$n# (A&*), to quant$fy the true prof$ta"$!$ty of d$fferent act$v$t$es.

2) The contr$"ut$on of A&* $s to refocus mana#ement)s attent$on a0ay from us$n# on!y !a"or or mater$a! standard costs to a!!ocate fu!! cost, and to0ard captur$n# the actua! costs of support$n# $nd$v$dua! products, customers, and other ent$t$es.

eview !ey "efinitions here# direct costs, traceable common costs, non-traceable common costs, and full-cost approach M%r7etin0 Mi. Mo'e in0 Marketing mi% models analy,e data from a variety of sources to understand more precisely the effects of specific marketing activities.

A) Mu!t$var$ate ana!yses are conducted to sort throu#h ho0 each market$n# e!ement $nf!uences market$n# outcomes of $nterest such as "rand sa!es or market share.

&) The f$nd$n#s from market$n# m$3 mode!$n# are used to a!!ocate or rea!!ocate e3pend$tures.

*) A!thou#h market$n# m$3 mode!$n# he!ps to $so!ate effects, $t $s !ess effect$ve at assess$n# ho0 d$fferent market$n# e!ements 0ork $n com"$nat$on.

+ORECASTING AND DEMAND MEASUREMENT 5ne ma6or reason for undertaking marketing research is to identify market opportunities. 5nce the research is complete, the company must measure and forecast the si,e, growth, and profit potential of each market opportunity.

A) a!es forecasts are used "y f$nance to ra$se the needed cash for $nvestment and operat$ons.

&) &y the manufactur$n# department to esta"!$sh capac$ty and output !eve!s.

*) &y purchas$n# to acqu$re the r$#ht amount of supp!$es.

-) &y human resources to h$re the needed num"er of 0orkers.

.) a!es forecasts are "ased on est$mates of demand.

Me%$*re$ of M%r7et De!%n'

Companies can prepare as many as CE different types of demand estimates. &igure '.' 8inety )ypes of "emand

A) -emand can "e measured for s$3 d$fferent product !eve!s.

&) /$ve d$fferent space !eve!s.

*) Three d$fferent t$me !eve!s.

-) .ach demand measure serves a spec$f$c purpose.

.) /orecasts a!so depend on 0h$ch type of market $s "e$n# cons$dered.

/) The s$:e of the market h$n#es on the num"er of "uyers 0ho m$#ht e3$st for a part$cu!ar market offer.

1) The potential market $s the set of consumers 0ho profess a suff$c$ent !eve! of $nterest $n a market offer.

2) The available market $s the set of consumers 0ho have $nterest, $ncome, and access to a part$cu!ar offer.

') The target market $s the part of the qua!$f$ed ava$!a"!e market the company dec$des to pursue.

H) The penetrated market $s the set of consumers 0ho are "uy$n# the company)s product.

I) These def$n$t$ons are a usefu! too! for market p!ann$n#.

1) 'f the company $s not sat$sf$ed 0$th $ts current sa!es $t can:

a. Attract a !ar#er percenta#e of "uyers from $ts tar#et market.

". ;o0er the qua!$f$cat$ons of potent$a! "uyers.

c. .3pand $ts ava$!a"!e market "y open$n# d$str$"ut$on e!se0here or !o0er $ts pr$ce.

d. 5epos$t$on $tse!f $n the m$nds of $ts customers

eview !ey "efinitions here# potential market, available market, target market, and penetrated market A 8o#%b* %r, for De!%n' Me%$*re!ent )he ma6or concepts in demand measurement are market demand and company demand. 0ithin each, we distinguish among a demand function, a sales forecast, and potential.

M%r7et De!%n' )he marketer+s first step in evaluating marketing opportunities is to estimate total market demand.

A) Market demand for a product $s the tota! vo!ume that 0ou!d "e "ou#ht "y a def$ned customer #roup, $n a def$ned #eo#raph$ca! area, $n a def$ned t$me per$od, $n a def$ned market$n# env$ronment, under a def$ned market$n# pro#ram.

&) Market demand $s not a f$3ed num"er, "ut rather a funct$on of the stated cond$t$ons.

*) /or th$s reason, $t can "e ca!!ed the market demand function.

&igure '.= ;a< shows the underlying conditions of the dependence of total market demand.

-) The hor$:onta! a3$s sho0s d$fferent poss$"!e !eve!s of $ndustry market$n# e3pend$ture $n a #$ven t$me per$od.

.) The vert$ca! a3$s sho0s the resu!t$n# demand !eve!.

/) The curve represents the est$mated market demand assoc$ated 0$th vary$n# !eve!s of $ndustry market$n# e3pend$ture.

1) ome "ase sa!es (ca!!ed the market minimum) 0ou!d take p!ace 0$thout any demand-st$mu!at$n# e3pend$tures.

2) 2$#her !eve!s of $ndustry market$n# e3pend$tures 0ou!d y$e!d h$#her !eve!s of demand, f$rst at an $ncreas$n# rate, then at a decreas$n# rate.

') Market$n# e3pend$tures "eyond a certa$n !eve! 0ou!d not st$mu!ate much further demand, thus su##est$n# an upper !$m$t to market demand ca!!ed the market potential.

H) The d$stance "et0een the market m$n$mum and the market potent$a! sho0s the overa!! marketing sensitivity of demand.

I) An e%pansible market $s very much affected $n $ts tota! s$:e "y the !eve! of $ndustry market$n# e3pend$tures.

;) A non-e%pansible market $s not much affected "y the !eve! of market$n# e3pend$tures.

1) Cr#an$:at$ons se!!$n# $n an non-e3pans$"!e market must accept the market)s s$:e and d$rect efforts to 0$nn$n# a !ar#er market share for $ts products.

M) The compar$son of the current !eve! of market demand to the potent$a! demand !eve! $s ca!!ed the market penetration inde%:

1) A !o0 market penetrat$on $nde3 $nd$cates su"stant$a! #ro0th potent$a! for the f$rm.

2) A h$#h market penetrat$on $nde3 su##ests that there 0$!! "e $ncreased costs $n attract$n# the fe0 rema$n$n# prospects.

3) 1enera!!y, pr$ce compet$t$on $ncreases and mar#$ns fa!! 0hen the market penetrat$on $nde3 $s h$#h.

>) A company shou!d a!so compare $ts current market share to $ts potent$a! market share, ca!!ed share penetration inde%:

21 1 *hapter-"y-*hapter 'nstruct$ona! Mater$a!

1) A !o0 share penetrat$on $nde3 $nd$cates that the company can #reat!y e3pand $ts share.

2) A f$rm shou!d ca!cu!ate the share penetrat$on $ncreases that 0ou!d occur 0$th $nvestments to see 0h$ch $nvestments 0ou!d produce the #reatest $mprovement $n share penetrat$on.

C) 't $s $mportant to remem"er that the market demand funct$on $s not a p$cture of market demand over t$me.

P) 5ather, the curve sho0s a!ternat$ve current forecasts of market demand assoc$ated 0$th a!ternat$ve poss$"!e !eve!s of $ndustry market$n# effort $n the current per$od.

eview !ey "efinitions here# market demand, market demand function, market minimum, market potential, marketing sensitivity of demand, e%pansible market, non-e%pansible market, market share, market penetration inde%, and share penetration inde% M%r7et +ore#%$t 5nly one level of industry marketing e%penditure will actually occur. )he market demand corresponding to this level is called the market forecast.

M%r7et Potenti% )he market forecast shows e%pected market demand, not ma%imum market demand. &or the latter, we have to visuali,e the level of market demand resulting from a 7very high9 level of industry marketing e%penditure.

A) Market potential $s the !$m$t approached "y market demand as $ndustry market$n# e3pend$tures approach $nf$n$ty for a #$ven market$n# env$ronment.

&) The phrase =for a #$ven market env$ronment? $s cruc$a!.

1) *ompan$es cannot do anyth$n# a"out the pos$t$on of the market demand funct$on "ut each can $nf!uence $ts part$cu!ar !ocat$on on the funct$on 0hen $t dec$des ho0 much to spend on market$n#.

&igure '.= ;b< Market "emand &unctions

*) *ompan$es $nterested $n market potent$a! have a spec$a! $nterest $n the product penetration percentage that $s the percenta#e of o0nersh$p or use of a product or serv$ce $n a popu!at$on.

-) *ompan$es assume that the !o0er the product penetrat$on percenta#e, the h$#her the market potent$a!J assum$n# everyone 0$!! eventua!!y "e $n the market for every product.

Co!p%n, De!%n'

A) Company demand $s the company)s est$mated share of market demand at a!ternat$ve !eve!s of company market$n# effort $n a #$ven t$me per$od.

&) The company)s share of market demand depends on ho0 $ts products, pr$ces, commun$cat$ons, serv$ces, and so on are perce$ved re!at$ve to compet$tors.

*) A!! th$n#s equa!, the company)s market share 0ou!d depend on the s$:e and effect$veness of $ts market e3pend$tures re!at$ve to compet$tors.

Co!p%n, S% e$ +ore#%$t

A) The company sales forecast $s the e3pected !eve! of company sa!es "ased on a chosen market$n# p!an and an assumed market$n# env$ronment.

&igure '.= shows the company sales on the vertical a%is and the company marketing effort on the hori,ontal a%is.

&) The company sa!es forecast does not esta"!$sh a "as$s for dec$d$n# 0hat to spend on market$n#.

*) Cn the contrary, the sa!es forecast $s a resu!t of an assumed market$n# e3pend$ture !eve!.

-) A sales -uota $s the sa!es #oa! set for a product !$ne, company d$v$s$on, or sa!es representat$ve.

.) A sales budget $s a conservat$ve est$mate of the e3pected vo!ume of sa!es and $s used pr$mar$!y for mak$n# current purchas$n#, product$on, and cash f!o0 dec$s$ons.

/) The sa!es "ud#et $s "ased on the sa!es forecast and $s #enera!!y set s!$#ht!y !o0er than the sa!es forecast.

eview !ey "efinitions here# market potential, product penetration percentage, company demand, company sales forecast, sales -uota, sales budget Co!p%n, S% e$ Potenti% Company sales potential is the sales limit approached by company demand as the company marketing effort increases relative to that of competitors.

A) The a"so!ute !$m$t of company demand $s the market potent$a!.

&) 'n most cases, company sa!es potent$a! $s !ess than market potent$a!.

1) .ach compet$tor has a hard core of !oya! "uyers 0ho are not very respons$ve to other compan$es) efforts to 0oo them.

E$ti!%tin0 C*rrent De!%n' Marketing e%ecutives want to estimate total market potential, area market potential, and total industry sales and market shares.

Tot% M%r7et Potenti% )otal market potential is the ma%imum amount of sales that might be available to all the firms in an industry during a given period, under a given level of industry marketing effort and environmental conditions.

A) A common 0ay to est$mate tota! market potent$a! $s:

1) .st$mate the potent$a! num"er of "uyers F.

2) The avera#e quant$ty purchased "y a "uyer F.

3) The pr$ce pa$d.

&) The most d$ff$cu!t component to est$mate $s the num"er of "uyers for the spec$f$c product or market.

*) A var$at$on $s ca!!ed the chain-ration method, which involves multiplying a base number, "y severa! ad(ust$n# percenta#es.

Are% M%r7et Potenti% Companies face the problem of selecting the best territories and allocating marketing budget optimally among these territories.

A) Therefore, $t needs to est$mate the market potent$a! of d$fferent c$t$es, states, and nat$ons.

&) T0o ma(or methods of assess$n# area market potent$a! are:

1) The market-"u$!dup method that $s used "y "us$ness marketers.

2) The mu!t$p!e-factor $nde3 that $s used pr$mar$!y "y consumer marketers.

M%r7et9-*i '*p Metho'

A) The market-buildup method ca!!s for $dent$fy$n# a!! the potent$a! "uyers $n each market and est$mat$n# the$r potent$a! purchases.

&) Th$s method produces accurate resu!ts $f 0e have a !$st of a!! potent$a! "uyers and a #ood est$mate of 0hat each 0$!! "uy.

*) An eff$c$ent method of est$mat$n# area market potent$a!s makes use of the North merican Industry Classification !ystem "N IC!#.

M* tip e9+%#tor In'e. Metho'

A) The method most common!y used $n consumer markets $s a stra$#htfor0ard $nde3 method.

&) A s$n#!e factor $s rare!y a comp!ete $nd$cator of sa!es opportun$t$es thus $t makes sense to deve!op a mu!t$p!e-factor $nde3, 0$th each factor ass$#ned a 0e$#ht.

*) Many compan$es compute other area $nde3es as a #u$de to a!!ocat$n# market$n# resources.

)able '.(E shows the percentage of F.S. brand and category sales and column : shows the 4"I.

-) The brand development inde% ;4"I< that $s an $nde3 of "rand sa!es to cate#ory sa!es.

.) After the company dec$des on the c$ty-"y-c$ty a!!ocat$on of $ts "ud#et, $t can ref$ne each c$ty a!!ocat$on do0n to census tracts or :$pK% code centers.

/) Census tracts are sma!!, !oca!!y def$ned stat$st$ca! areas $n metropo!$tan areas and some other countr$es.

1) -ata on popu!at$on s$:e, med$an fam$!y $ncome, and other demo#raph$c $nformat$on $s ava$!a"!e for these un$ts.

In'*$tr, S% e$ %n' M%r7et Sh%re$ 4esides estimating total potential and area potential, a company needs to know the actual industry sales taking place in its market. )his means identifying competitors and estimating sales.

A) The $ndustry trade assoc$at$on 0$!! often co!!ect and pu"!$sh tota! $ndustry sa!es.

1) +$th th$s $nformat$on, a company can eva!uate $ts performance a#a$nst the 0ho!e $ndustry.

&) Another 0ay to est$mate sa!es $s to "uy reports from a market$n# research f$rm that aud$ts tota! sa!es and "rand sa!es.

1) These aud$ts #$ve the company va!ua"!e $nformat$on a"out $ts tota! product-cate#ory sa!es as 0e!! as "rand sa!es.

2) 't can compare $ts performance to the tota! $ndustry or any part$cu!ar compet$tor to see 0hether $t $s #a$n$n# or !os$n# share.

*) &us$ness #oods marketers typ$ca!!y have a harder t$me est$mat$n# $ndustry sa!es and market shares than consumer #oods marketers, and 0$!! therefore operate 0$th !ess kno0!ed#e of the$r market share resu!ts.

E$ti!%tin0 +*t*re De!%n' Gery few products or services lend themselves to easy forecasting. In most markets, total demand and company demand are not stable. Good forecasting becomes a key factor in company success. )he more unstable the demand, the more critical is forecast accuracy, and the more elaborate is forecasting procedure.

A) *ompan$es #enera!!y use a three-sta#e procedure to prepare a sa!es forecast.

1) They prepare a macroeconom$c forecast.

2) An $ndustry forecast.

3) *ompany sa!es forecast.

&) *ompan$es can do forecasts $nterna!!y or "uy forecasts from outs$de sources.

*) A!! forecasts are "u$!t on one of three $nformat$on "ases:

1) +hat peop!e say.

2) +hat peop!e do.

3) +hat peop!e have done.

S*r&e, of -*,er$; Intention$ &orecasting is the art of anticipating what buyers are likely to do under a given set of conditions. 4ecause buyer behavior is so important, buyers should be surveyed.

A) A purchase probability scale asks the "uyers $ntent$ons 0$th$n a #$ven t$me per$od, !$ke a year.

&) /or "us$ness, "uy$n# f$rms can carry out "uyer-$ntent$on surveys re#ard$n# cap$ta! equ$pment.

*) A =#rassroots? forecast$n# procedure deta$!s est$mates "roken do0n "y product, terr$tory, customer, and sa!es rep.

Co!po$ite of S% e$ +or#e Opinion$ $ach sales representative estimates how much each current and prospective customer will buy of each of the company+s products E.pert Opinion Companies can obtain forecasts form e%perts, including dealers, distributors, suppliers, marketing consultants, and trade associations.

A) Many compan$es "uy econom$c and $ndustry forecasts from 0e!!-kno0n econom$c-forecast$n# f$rms.

&) Cccas$ona!!y, compan$es 0$!! $nv$te a #roup of e3perts to prepare a forecast.

1) $roup%discussion method.

2) &ooling of individual estimates.

3) 'elphi method.

P%$t S% e$ An% ,$i$ Sales forecasts can be developed on the basis of past sales.

A) )ime-series analysis cons$sts of "reak$n# do0n past t$me ser$es $nto four components:

1) Trend.

2) *yc!e.

21G *hapter %: *onduct$n# Market$n# 5esearch and /orecast$n# -emand

3) easona!.

%) .rrat$c and pro(ect$n# these components $nto the future.

&) $%ponential smoothing cons$sts of pro(ect$n# the ne3t per$od)s sa!es "y com"$n$n# an avera#e of past sa!es and the most recent sa!es, #$v$n# more 0e$#ht to the !atter.

*) Statistical demand analysis cons$sts of measur$n# the $mpact !eve! of each of a set of causa! factors on the sa!es !eve!.

-) $conometric analysis cons$sts of "u$!d$n# sets of equat$ons that descr$"e a system, and proceed$n# to f$t the parameters stat$st$ca!!y.

M%r7et Te$t Metho' 0hen buyers do not plan their purchases carefully or e%perts are not available or reliable, a direct-market test is desirable.

A) A direct-market test $s espec$a!!y des$ra"!e $n forecast$n# ne0 product sa!es or esta"!$shed product sa!es $n a ne0 d$str$"ut$on channe! or terr$tory.

eview !ey "efinitions here# total market potential, area market potential, total industry sales, chain-ration method, purchase probability scale, time-series analysis, e%ponential smoothing, statistical demand analysis, econometric analysis, and direct-market test