AN INTRODUCTION TO MARKET RESEARCH

Marketing research is the function that links the consumer, customer, and public to the marketer
through information. This information is used to identify and define marketing opportunities and
problems; to generate, refine, and evaluate marketing actions; to monitor marketing
performance; and to improve understanding of the marketing process. Marketing research
specifies the information, manages and implements the data-collection process, analyzes the
results, and communicates the findings and their implications. Marketing research is concerned
with the application of theories, problem-solving methods, and techniques to identify and solve
problems in marketing. In order to offset unpredictable consumer behavior, companies invest in
market research.

Market Research is a systematic, objective collection and analysis of data about a particular
target market, competition, and/or environment. It always incorporates some form of data
collection whether it be secondary research (often referred to as desk research) or primary market
research which is collected direct from a respondent. The purpose of any market research project
is to achieve an increased understanding of the subject matter. With markets throughout the
world becoming increasingly more competitive, market research is now on the agenda of many
organisations, whether they be large or small.

Market Research Is either quantitative, qualitative, or a combination of both. Qualitative and

quantitative market research methods each provide different insights into customer behaviour.
Normally, research results are more useful when the two methodsare combined.

QUALITATIVE MARKET RESEARCH

Qualitative market research provides an understanding of how or why things areas they are. For
example, a Market Researcher may stop a consumer who has purchaseda particular type of bread
and ask him or herwhy that type of breadwaschosen. Unlikequantitative research there areno
fixed set of questions but, instead, a topic guide(or discussion guide) is used to explore various
issues in-depth.The discussion between the interviewer (or moderator) and the respondent is
largely determined by the respondents' own thoughts and feelings.
 There are various typesof qualitative market research methodologies. Research of this sort is
mostly doneface-to-face.One of the best-known techniques is the market research group
discussion (or focus group). These are usually made up of 6 to 8 targeted respondents, a
researchmoderator whose role is to ask the required questions, draw out answers, and encourage
discussion, and an observation area usually behind one way mirrors, and video and/or audio
taping facilities.

In addition, qualitative market research can also be conducted on a ‘one on one’ basis i.e. an in-
depth market research interview with a trained executive interviewer and one respondent, a
paired depth (two respondents), a triad (three respondents) and a mini group discussion (4-5
respondents).

QUANTITATIVE MARKET RESEARCH

Quantitative market research is numerically oriented, requiressignificant attention to the

measurement of market phenomenaand often involves statistical analysis. For example, a bank
might ask its customers to rate its overall service as either excellent, good, poor or very poor.
Thiswill provide quantitative informationthatcan be analysed statistically. The main rule with
quantitative market research is that every respondent is asked the same seriesof questions. The
approach is very structured and normally involves large numbers of interviews/questionnaires.

Perhaps the mostcommon quantitative techniqueisthe ‘market researchsurvey’. These are

basically projects that involve the collection of data from multiple cases – suchas consumers or a
set of products. Quantitative market research surveys can be conducted by using post (self-
completion), face-to-face (in-street or in-home), telephone, email or web techniques. The
questionnaire is oneof the more common tools for collectingdata from a survey, but it is only one
of a wide ranging set of data collection aids.

A Definition of Marketing Research

Green and Tull1 have defined marketing research as follows:

"Marketing research is the systematic and objective search for, and analysis of, information
relevant to the identification and solution of any problem in the field of marketing."
The key words in this definition are; systematic, objective and analysis. Marketing research
seeks to set about its task in a systematic and objective fashion. This means that a detailed and
carefully designed research plan is developed in which each stage of the research is specified.
Such a research plan is only considered adequate if it specifies: the research problem in concise
and precise terms, the information necessary to address the problem, the methods to be employed
in gathering the information and the analytical techniques to be used to interpret it.

CHARACTERISTICS OF GOOD MARKETING RESEARCH

Following are the characteristics of good marketing research

Scientific method. Effective marketing research uses the principles of the scientific method:
careful observation, formulation of hypotheses, prediction, and testing.

Research creativity. At its best, marketing research develops innovative ways to solve a problem.

Multiple methods. Competent marketing researchers shy away from over-reliance on any one
method, preferring to adapt the method to the problem rather than the other way around. They
also recognize the desirability of gathering information from multiple sources to give greater
confidence.

Interdependence of models and data. Competent marketing researchers recognize that the facts
derive their meaning from models of the problem. These models guide the type of information
sought and therefore should be made as explicit as possible.

Value and cost of information. Competent marketing researchers show concern for estimating
the value of information against its cost. Value/cost evaluation helps the marketing research
department determine which research projects to conduct, which research designs to use, and
whether to gather more information after the initial results are in. Research costs are typically
easy to quantify, while the value is harder to anticipate. The value depends on the reliability and
validity of the research findings and management's willingness to accept and act on its findings.
In general, the most valuable information tends to cost the most because it requires more
intensive methods, but of course it is easy to spend a great deal of money on poorly conceived
research.
Healthy skepticism. Competent marketing researchers will show a healthy skepticism toward
assumptions made by managers about how the market works.

Ethical marketing. Most marketing research benefits both the sponsoring company and its
consumers. Through marketing research, companies learn more about consumers' needs, and are
able to supply more satisfying products and services. However, the misuse of marketing research
can also harm or annoy consumers. There are professional ethical standards guiding the proper
conduct of research.

Clear, concise, attainable, measurable and quantifiable objectives

Suppose that the marketing manager states that he needs to know the potential market for a new
product his/her organisation has been developing. At first glance this might appear to meet all of
the requirements of being clear, concise, attainable, measurable and quantifiable. In practice it
would possibly meet only one of these criteria, i.e. it is concise!

Here is another case to be considered. A small engineering firm had purchased a prototype tree-
lifter from a private research company. This machine was suitable for lifting semi-mature trees,
complete with root-ball intact, and transplanting such trees in another location. It was thought to
have potential in certain types of tree nurseries and plantations.

The problem with the objective is that the marketing manager needs to know the potential market
for the new tree-lifter is that it is not attainable. One could find out how many tree-lifters were
currently being sold but this is not the same as the objective set by the marketing manager. The
market potential for any new brand is a function of at least 4 things, as shown in Figure 1.1.

Figure 1.1 The components of market potential

It was possible to test customer reaction to the concept of the new tree-lifter by showing pictures,
line drawings and by supplying product specifications to prospective buyers. However, since the
company had not decided their pricing policy an important element could not be tested. In large
measure, it was also possible to gauge the likely reaction from competitors. The researchers
began by looking at the basis of competition to determine whether it was on price, product
quality or unique product features. The researchers were able to look at precedents. They
examined the pattern of response on past occasions when one or other of those companies
already in the market had launched a new product. An audit of the environment was undertaken
too, but the missing component was the company's' own plans for exploiting the market. Since
the company had no involvement in the agricultural engineering sector, prior to acquiring the
rights to the tree-lifter, they had no agreements with distributors, no idea of which, if any, of the
distributors would be prepared to stock their product; they had no salesmen trained in selling into
this industry and so on. The product's potential depended very much on such initiatives.

The solution would have been to undertake a study which would have described the market in
detail in terms of customers, competitors and the environment. The company could then have put
a marketing plan together and conducted a follow-up study to test their propositions out on the
marketplace.

MARKET RESEARCH FROM AN ART TO A SCIENCE

Marketing Science

Marketing is a science because marketing is about understanding and influencing behaviors.

Psychology, the science of behaviors, studies how people react to certain stimuli in predictable
ways. This is similar to Newton’s’ third law – cause and effect.

Marketing Art

Marketing is an art because marketing is about appreciating the nuances of human behaviors.
Beauty is in the eye of the beholder. Beauty is art.
Marketing Science

Marketing is a science because marketing is about measuring and analyzing the numbers. How
many do you reach? How many read your message? How many do you convert to buyers? How
much do they spend? How many buy again? These are numeric questions and answers and
important to the success of your marketing.

Marketing Art

Marketing is art because marketing is creating a demand for your product. Some of that demand
is immediate and some of it is in the future. You can try to use science to predict the future part
but you might pick a number based on art. There is always an unknown aspect that we attribute
to art.

Marketing Science

Marketing is a science because the most common question is “How much money should I spend
on marketing?” The business owner and the accountants want the answer to this question. It’s a
good question but the more important question is, “What return can you expect from your
marketing investment?”

Marketing Art

Marketing is an art because there is the issue of branding which is difficult to measure. To
generate a good return on your marketing investment requires a creative approach. That means
apply the art of marketing.

Of course the argument of science versus art over marketing could go on. Is it art? Is it science?
I believe that many marketers try to portray marketing as art. And hence they give up
responsibility for their marketing programs. They suggest that marketing is all chance. Instead it
is a science that should draw upon the art. Don’t let art dictate the direction of your marketing.
Use science to determine major decisions and use the art for the nuances. Is marketing a science
or art? I believe that it is both art and science. Most importantly th science should lead and
measure and the art should inspire and create. That is the art and science of marketing.
Market forecasting has tended to rely on expert opinion rather than iteration of relevant factual
data and formal modeling. The art of forecasting has been far from perfect in terms of accuracy,
detail, and currency.

The McIlvaine approach has evolved over 25 years. A major step forward has been the
combination of the Internet for easy access to millions of specific forecasts and the streamlining
and structuring of the methods for determining the forecasts. This approach improves accuracy,
provides greater details, and makes it possible to continually revise data.

Example:

Here is an example of the system and its value. We have selected polymer sales in secondary
municipal wastewater treatment plants in Taiwan. Polymerco is a hypothetical polymer supplier
who sells some polymer in Taiwan but the amount is small. First of all Polymerco wants to know
their percentage of the existing market. Next they would like to determine the longer term
potential. Based on this knowledge they will then project sales for this country. They would
continually evaluate revisions of this data and if changes exceed specified limits an “action
trigger” would force re-evaluation of the campaign.

The McIlvaine online report Water and Wastewater Chemicals World Market not only provides
the forecasts but also the factors behind the forecasts. Polymerco can select Taiwan, municipal
wastewater, and organic flocculants. As seen in Figure 1, Water and Wastewater Chemicals:
Industry, Product and Country, the sales of flocculants will grow from $2.39 million in 2002 to
over $4 million in 2005.  

Figure 1:     WATER AND WASTEWATER CHEMICALS 

                  INDUSTRY, PRODUCT AND COUNTRY
($ Millions)

2000 2001 2002 2003 2004 2005

 $1.66  $1.99  $2.39  $2.86  $3.44  $4.12

2000 2001 2002 2003 2004 2005

The report also provides the relationships between the forecast and the causative factors. In
Figure 2 Polymer Sales Taiwan Secondary Municipal Wastewater Treatment Plants, the top line
is “polymer sales based on sewage transport mgd. Since much of the present wastewater does
not pass through secondary treatment plants, the quantity of polymer which would be needed if
all sewage received secondary treatment is much larger than the amount which is based on actual
and predicted secondary treatment capacity. This difference is the world penetration factor.
McIlvaine is continually revising forecasts of sewage transport mgd, primary treatment mgd, and
secondary treatment mgd for each country of the world.

Figure 2.

The second line is “theoretical polymer sales based on secondary mgd.” This is a ratio of
world polymer sales /world secondary mgd. However, in the base year (2000) actual polymer
sales in Taiwan are well below the world wide average. This difference is the geographical
penetration ratio.

Line 3 is the projected polymer sales. This is the forecast for Taiwan for polymers but is actually
derived from line 4.
Line 4 is the actual polymer sales in the base year growing at the industry growth rate. But
we predict that polymer sales will grow at a greater rate than the mgd of secondary treatment.
The difference is the excess growth rate.

Line 5 represents Polymerco theoretical polymer sales in Taiwan growing at a rate to maintain a
constant market share. This line is based on the ratio of worldwide Polymerco polymer sales
divided by worldwide secondary mgd. This line is an indicator of sales that would result if the
same level of penetration was made in Taiwan as in the rest of the world.

Line 6 represents Polymerco theoretical polymer sales in Taiwan but growing at the secondary
mgd growth rate or industry growth rate

Line 7 is Polymerco minimum potential (explanation at end)

Line 8 is Polymerco projected sales. These are the sales revenues that Polymerco actually plans
to obtain and could be characterized as the quota or target etc.

Line 9 is Polymerco sales if they grew only at the same rate as total polymer sales, in other
words, if the market share is held constant. The difference between line 8 and 9 is the excess
growth rate

Line 7 is the Polymerco minimum potential. This line represents Polymerco sales if Polymerco
achieved the same rate of success in Taiwan as in the world as a whole (polymer/secondary mgd)
and the company maintained its market share at this higher rate.

The value of this information is greatly enhanced by the ease with which the numbers can be
updated. Since McIlvaine is continually changing projected secondary mgd numbers and since it
is easy to link all the numbers, these forecasts can be kept current

The value of making forecasts based on the broader understanding of the market is considerable.
If, for example, Polymerco has a polymer which will make belt filter presses achieve 40% dry
solids instead of 20%, then the market for polymers in general and even secondary treatment
would change. Therefore, knowledge of the line 1 numbers gives this broader perspective.

Most sales forecasts are based on perceived industry growth rates without regard for the potential
of the “excess growth rate.” For example let’s say the industry is growing at 10% and
Polymerco’s sales grow at 11%. Management could view this as a successful effort. But what if
polymer sales are actually growing at 12%? Polymerco is actually losing rather than gaining
market share.

One legitimate question is whether the cost of all these computations is so high as to be greater
than the value. The answer is that the money has already been spent to track the industry data
and work out the programs. The value is considerable so there is a high rate of return on the
investment.

Purchaser Determines the Future Market

The total sales of a product equals the total of the purchases by the individual industry segments.
The 2005 market for ball valves will equal the 2005 purchases by the power, wastewater,
chemical, and other industries. These purchases in turn will be affected by the production growth
rates in these industries between the present and 2005.

However, the purchase of a product is also affected by other factors which cause product sales to
rise or fall at a different rate than the purchasing industries’ own production.

All these factors can be identified and quantified and integrated into the following formulas:

Present sales of a product in an industry in a county = WPF x GIC or GIP x GPR. Future sales
= present sales x the industry growth rate x EGR.

These terms are defined as follows:

World Penetration Factor (WPF)

This factor is the ratio of specific product revenues in the base year divided by the potential
revenues if all potential purchasers utilized this product rather than an alternative. Membrane
systems are starting to compete with sand filters in municipal drinking water plants. The ratio of
membrane system sales for drinking water in the base year divided by the sales of all filters for
drinking water plants provides the WPF. The potential is measured in product revenues per unit
of production. In semiconductors this could be wafer starts, in power it could be megawatts, and
in pharmaceutical it could be production revenues. In wastewater it is millions of gallons per
day. If there are 1,000 mgd of new secondary treatment plants but only 200 mgd will use belt
filter presses, then the penetration rate is only 20 percent of belt filter presses.

Geographical Industry Capital Factor (GIC)

This factor is the ratio of the individual country capital investment in an industry in a present or
future year divided by the world industry capital investment in the base year. So if the capital
investment in the pharmaceutical industry in Taiwan in 2005 is $10 billion and the world
investment in 2000 is $200 billion then the GICIF is 0.05. This ratio is often based on some
value other than revenue. In the power industry this is usually megawatts of new construction. In
fact it is typically megawatts of coal-fired boilers or megawatts of combined cycle gas turbines.
There are even values which are synthesized to provide maximum utility. Wet path megawatts
are an example. It combines all the megawatts of new power plant types in such a manner that
the resultant values are directly proportional to revenues for valve, pump and certain other
products used in the power industry.

Examples in other industries are wafer starts per month (semiconductor industry), tons per day of
refuse burning capacity (municipal incinerators) and barrels per day of new capacity (oil refining
industry). Municipal wastewater treatment plant expenditures can be based on additional
numbers of people served. However, providing separate values in millions of gallons per day for
sewage transport, primary treatment, and secondary treatment provides much more useful tools.

Geographical Industry Production Factor (GIP)

This factor is the ratio of the individual country production revenues in an industry in a present
or future year divided by the world industry production revenues in the base year. So if the
semiconductor production revenues are $43.3 billion in Taiwan in 2005 and world
semiconductor revenues in 2000 were $204 billion, then the GIP is 0.21. This ratio is often based
on some value other than production revenues.  Megawatts, wafer starts, millions of gallons per
day are all utilized as per the explanation above under GIC.

Geographical Penetration Ratio (GPR)

The market for a product may not be distributed geographically in the same percentages as the
end user industry. But For many products there is no deviation between the industry activity and
the revenue for the product being forecasted. If 30% of the production is one country then 30%
of the specific product revenue will also be in that country. Any potential for deviation is
lessened by the criteria used to determine the industry shares. For example instead of dividing
the world power industry by  the simple megawatts of new construction or installed capacity,
more specific divisions are used such as combined cycle gas turbines, or an even more specific
"wet path megawatts".

In some cases the end user segmentation does not precisely fit the distribution of product
revenues. The two most common reasons are regulations and product bias. Pollution control
equipment revenue is typically driven by regulations. In one country 100% of the new equipment
will be fitted with back end air pollution control equipment and in another none of the equipment
will be required. An example of product bias is in minienvironments for semiconductor plants.
The Taiwanese jumped on this trend while the U.S. and others stayed with the traditional
ballroom cleanrooms.

The penetration ratio is actual product distribution divided by the industry distribution. So if 30%
of the pharmaceutical production revenue is generated in the U.S. but 60% of the product
revenue in the base year is generated in the U.S., then the U.S. penetration ratio is 2.0. If the
pharmaceutical production revenue in a small country is 5% but only 3% of the product was sold
there in the base year then the penetration ratio is 0.6. The penetration ratio is only useful in
determining the base year product revenues is specific countries or regions. It is obviously 1.0
for the world. Also, the market in future years beyond the base year is determined by the
combination of industry and product growth rates.

The penetration ratio concept can also be used to determine the future market for a specific
proprietary product. The same ratio of present product sales in each country to industry revenues
provides the proprietary product penetration ratio. This is a measure of success for the
proprietary product in each country.

Excess Growth Rate (EGR)

This is the growth rate for the specific product revenue (SPR) in excess of the GIC or GIP. If the
industry is growing at 6% and the product sales to that industry will grow at 10%/yr then the
excess growth rate is 4% per year.

Product Use – Equipment

A product can be used as part of a new capital investment. This in turn can be new capacity or
replacement capacity. Where capital investment is used directly as the unit of measure both new
capacity and replacement capacity are included. But where units such as installed capacity and
incremental increases are used it becomes more complicated. For example, mgd might be
increasing at 5% per year but if the product life is only ten years then replacement is 10% of
installed mgd. Total equipment purchases for 15% of the installed mgd are needed. (Note that
this value representing 15% of installed mgd will increase 5% per year.) New capacity is the
incremental increase in mgd each year. But some plants are being retired. So specific product
revenue must take into account both new capacity and replacements.

McIlvaine industry forecast date is generally provided in two forms – new capacity and total
capacity. Capital equipment purchases are a combination of incremental capacity additions and
capacity additions that are replacements (equal to retirements). In some cases, capital investment
forecasts are available. This includes both new and replacement capacity additions. For example,
McIlvaine is continually updating forecasts of semiconductor capital equipment orders. Sales of
cleanrooms, ultrapure water systems, and etching scrubbers will rise and fall proportionally to
semi equipment orders.

In the pharmaceutical industry, capital investment forecasts are not readily available and
equipment forecasts will need to be derived from production revenue forecasts. The incremental
capacity increase equals the production increase. The replacement capacity value is derived as a
percentage of total production.

So for every application in McIlvaine forecasts there is a capital equipment chart in percentages
with the base year equaling 100%. There is also a consumables/replacement chart with the base
year equaling 100%. If the capital equipment chart is based on total capital investment, then only
this one chart is needed for equipment forecasts. If the chart is based on incremental capacity
increases, then both charts are needed to determine equipment purchases.  
   Base Year Year 1 Year 2

Example 1      

Capital Investment $ 1000 1100 1200

Equipment % 100 110 120

Example 2        

Production Increase $
30 50 70

Equipment (new
3 5 7
capacity) $

Total production $ 250 300 370

Equipment (replacement)
5 6 7.4
$

Total Equipment $
8 11 14.4

In Example 2 the equipment for replacement includes new capacity offset by retirements as well
as equipment replacements of existing plants.

Equipment forecasts are based on orders not startups. Some equipment is ordered three years
before startup and some closer to startup. Equipment order forecasts are different where the
interval between orders and startup is different. Therefore, multiple templates (application charts
are necessary). For example, if coal-fired boiler installations are forecast at 4,000 MW in 2004
and 10,000 MW in 2005, 2002 FGD system orders would be factor x 10,000 whereas CEM
orders would be factor x 4,000.

Consumables

Purchases of consumables are generally proportional to installed capacity or more accurately

capacity in use. Production revenues are equivalent to capacity in use. Therefore, most
consumable forecasts are derived from industry capacity in use or production revenues.
There are occasions where the consumable purchases associated with capacity additions are
significant enough to warrant inclusion. This only occurs when products with a two or three year
life are considered consumables and when additions are very large compared to installed
capacity.

Bags for coal-fired boilers are an example. Bag life is three years with x representing value of all
installed bags. 0.33 x is the yearly replacement value. But if in one year capacity increased by
33% the value of bags for new plants would equal all the replacement bags.

Where consumables life is one week, it makes little difference whether capacity additions are
10% or 33%; yearly expenditures are still a function of the total capacity.

Article: Market Research – A Beginners Guide

By Danny Sims, Senior Partner of DJS Research

Background to Market Research

Market Research is a systematic, objective collection and analysis of data about a particular
target market, competition, and/or environment. It always incorporates some form of data
collection whether it be secondary research (often referred to as desk research) or primary
research which is collected direct from a respondent. The purpose of any market research project
is to achieve an increased understanding of the subject matter. With markets throughout the
world becoming increasingly more competitive, market research is now on the agenda of many
organisations, whether they be large or small.

The Market Research Process

To conduct market research, organisations may decide to undertake the project themselves (some
through a marketing research department) or they might choose to commission it via a market
research agency or consultancy. Whichever, before undertaking any research project, it is crucial
to define the research objectives i.e. what are you trying to achieve from the research? and what
do you need to know?

After considering the objectives, Market Researchers can utilise many types of research
techniques and methodologies to capture the data that they require. All of the available
methodologies either collect quantitative or qualitative information. The use of each very much
depends on the research objectives but many believe that results are most useful when the two
methods are combined.

Quantitative Research

Quantitative research is numerically oriented, requires significant attention to the measurement

of market phenomena and often involves statistical analysis. For example, a bank might ask its
customers to rate its overall service as either excellent, good, poor or very poor. This will
provide quantitative information that can be analysed statistically. The main rule with
quantitative research is that every respondent is asked the same series of questions. The approach
is very structured and normally involves large numbers of interviews/questionnaires.

Perhaps the most common quantitative technique is the ‘market research survey’. These are
basically projects that involve the collection of data from multiple cases – such as consumers or a
set of products. Quantitative surveys can be conducted by using post (self-completion), face-to-
face (in-street or in-home), telephone, email or web techniques. The questionnaire is one of the
more common tools for collecting data from a survey, but it is only one of a wide ranging set of
data collection aids.

Qualitative Research

Qualitative research provides an understanding of how or why things are as they are. For
example, a Market Researcher may stop a consumer who has purchased a particular type of
bread and ask him or her why that type of bread was chosen. Unlike quantitative research there
are no fixed set of questions but, instead, a topic guide (or discussion guide) is used to explore
various issues in-depth. The discussion between the interviewer (or moderator) and the
respondent is largely determined by the respondents' own thoughts and feelings.

As with quantitative techniques, there are also various types of qualitative methodologies.
Research of this sort is mostly done face-to-face. One of the best-known techniques is market
research group discussions (or focus groups). These are usually made up of 6 to 8 targeted
respondents, a research moderator whose role is to ask the required questions, draw out answers,
and encourage discussion, and an observation area usually behind one way mirrors, and video
and/or audio taping facilities.

In addition, qualitative research can also be conducted on a ‘one on one’ basis i.e. an in-depth
interview with a trained executive interviewer and one respondent, a paired depth (two
respondents), a triad (three respondents) and a mini group discussion (4-5 respondents).
Using Market Research Data

After compiling the data, Market Researchers evaluate it and make conclusions and
recommendations to their client or employer based upon their findings. They provide an
organisation's management with information needed to make decisions on the promotion,
distribution, design, and pricing of products or services – information that meets the initial
research objectives.

REFERENCES:

 http://www.djsresearch.com/