CH-3-4 Gathering Information and Scanning the Environment – Marketing Management: A South Asian Perspective : Chapter Notes

This Document Contains Chapters 3 to 4 Chapter 3 Gathering Information and Scanning the Environment LEARNING OBJECTIVES In this chapter, we will address the following questions: What are the components of a modern marketing information system? What are useful internal records? What is involved in a marketing intelligence system? What are the key methods for tracking and identifying opportunities in the macroenvironment? What are some important macroenvironment developments? CHAPTER SUMMARY To carry out their analysis, planning, implementation, and control responsibilities, marketing managers need a marketing information system (MIS). The role of the MIS is to assess the managers’ information needs, develop the needed information, and distribute that information in a timely manner. An MIS has three components: (a) an internal records system, which includes information on the order-to-payment cycle and sales information systems; (b) a marketing intelligence system, a set of procedures and sources used by managers to obtain everyday information about pertinent developments in the marketing environment; and (c) a marketing research system that allows for the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation. Marketers find many opportunities by identifying trends (directions or sequences of events that have some momentum and durability) and megatrends (major social, economic, political, and technological changes that have long-lasting influence). Within the rapidly changing global picture, marketers must monitor six major environmental forces: demographic, economic, social–cultural, natural, technological, and political–legal. In the demographic environment, marketers must be aware of worldwide population growth; changing mixes of age, ethnic composition, and educational levels; the rise of nontraditional families; and large geographic shifts in population. In the economic arena, marketers need to focus on income distribution and levels of savings, debt, and credit availability. In the social-cultural arena, marketers must understand people’s views of themselves, others, organizations, society, nature, and the universe. They must market products that correspond to society’s core and secondary values and address the needs of different subcultures within a society. In the natural environment, marketers need to be aware of the public’s increased concern about the health of the environment. Many marketers are now embracing sustainability and green marketing programs that provide better environmental solutions as a result. In the technological arena, marketers should take account of the accelerating pace of technological change, opportunities for innovation, varying R&D budgets, and the increased governmental regulation brought about by technological change. In the political-legal environment, marketers must work within the many laws regulating business practices and with various special-interest groups. There are two types of demand: market demand and company demand. To estimate current demand, companies attempt to determine total market potential, area market potential, industry sales, and market share. To estimate future demand, companies survey buyers’ intentions, solicit their sales force’s input, gather expert opinions, analyze past sales, or engage in market testing. Mathematical models, advanced statistical techniques, and computerized data collection procedures are essential to all types of demand and sales forecasting. OPENING THOUGHT Students new to the discipline of marketing will probably be surprised at the level of marketing information, intelligence, and arenas that marketing managers must operate within. The instructor is encouraged to stress that the marketing of products/services and the processes of making marketing decisions do not operate without careful consideration of the environments identified in this chapter. Today, marketers must be cognizant of “how” their product or service is perceived as much as “how” it functions. In many cases, the chief marketing executive of the firm can sometimes see himself/herself as a player in the game of chess. Each move must be carefully chosen for subsequent moves by competition and public scrutiny for acceptance or rejection. Products marketed must meet both the consumer’s needs as well as the public’s acceptance of the product. The instructor’s challenge for this chapter is to communicate to the students the complexity of and sometimes the conflicting forces impacting marketing managers in the 21st Century. TEACHING STRATEGY AND CLASS ORGANIZATION PROJECTS Semester-long marketing plan: Competitive information and environmental scanning project(s) completed and presented for instructor’s review. Commission a marketing research study on topic(s) of interest to the students at your institution. During the course of the semester, have the students develop the questionnaire, collection method, conduct the survey, and tabulate the results. The students can be divided into groups for this project. Suggested topics can include the school or university students’ opinions of campus issues such as the athletic program, sale of alcohol, use of and availability of technology, or students’ perceptions of their current education experiences. Marketing information systems, marketing intelligence systems, and marketing research systems are used to gather and analyze data for various parts of the marketing plan. These systems help marketers examine changes and trends in markets, competition, customer needs, product usage, and distribution channels. Some changes and trends may turn up evidence of opportunities or threats. Based on the marketing plan contents discussed in Chapter 2, get students to think about how MIS and marketing research can be used to support the marketing planning for their product or service. For which sections of the plan will you need secondary data? Primary data? Why do you need information for each section? Where can you find secondary data that will be useful? Identify two Internet sources and two non-Internet sources. Describe what you plan to draw from each source, and indicate how you will use the data in your marketing plan. What primary research will support a marketing strategy, including product management, pricing, distribution, and marketing communication? What issues should be resolved using primary data? What technological, demographic, and/or economic changes can potentially affect product development, buyer acceptance of products, and development of substitutes or enhanced products? ASSIGNMENTS In small groups, ask students to explain the difference between counterfeit and pirated goods. Get students to share their views on the implications of each on the consumer goods industry in Asia. Obesity has reached epidemic proportions in many Asian countries. These countries also face financial and health related implications of obesity-related disorders such as diabetes, hypertension, and cardiovascular diseases. The major causes include lifestyle changes due to rapid economic and social development. In small groups, have the students collect, from the university or college administrators, information about the students eating habits (on campus students would be one group; commuting students another group), exercise, and lifestyle. For example, how many students (as a percentage of the total student population) regularly take advantage of the available exercise facilities? How many students presently on campus are clinically obese? This is a very good project to demonstrate the skill of data mining and the use of secondary data. Select or suggest a current “fad” or “trend” exhibited by students on campus. Each student is to select either a fad or trend and then research this fad and trend in light of the marketing opportunities present. Would a firm be successful in capitalizing on this “fad?” If so, why? Should companies capitalize on this “trend”—What are the “upsides” for producing products that are currently “trendy?” What are the “downsides?” What generation do these fads and trends appeal to? How large is the potential market for the fad and/or trend? Students should prepare a report with as much detail into the specific characteristics of these markets as is available. This is a good secondary data and data mining assignment. Each student is a member of an identifiable ethic and demographic segment of society. As an individual assignment, ask each student to describe their sub-segment in terms of population, age distribution, growth potential, income, education levels, and other demographic characteristics. The conclusion of their report should explain the marketing implications of their findings in terms of potential market, over-saturated market, declining market, or hidden or ignored market with potential. END-OF-CHAPTER SUPPORT MARKETING DEBATE—Is Consumer Behavior More of a Function of a Person’s Age or Generation? One of the widely debated issues in developing marketing programs that target certain age groups is how much consumers change over time. Some marketers maintain that age differences are critical and that the needs and wants of a 25-year-old in 2008 are not that different from those of a 25-year-old in 1978. Others dispute that contention and argue that cohort and generation effects are critical, and that marketing programs must therefore suit the times. Take a position: Age differences are fundamentally more important than cohort effects versus Cohort effects can dominate age differences. Suggested Response: Pro: People are the “age” they think they are. We have experienced some fundamental changes in consumer lifestyles and the definition of “family.” These changes suggest that people are and can adapt to different products regardless of their chronological age. Today a vast number of aging baby boomers, for example, do not think of themselves as approaching middle age; as a result they represent a growing market for age defeating products. This is true with other age groups, as the advances in medicine, technology, and income have redefined what the “age” number really means to people. In marketing today, the marketing of a product or service can be designed to fit differing age groups by its positioning and advertising. Key examples include cruise line advertising and marketing to “active adults” encompassing a wide range of activities and locations previously thought of for the “youth” market. Conversely, with the delay in child bearing and child rearing by some generations, activities that were once thought of as for middle age or empty nesters can be remarketed to appeal to these groups as well. Some generations have decided to explore the world before settling down with children and a mortgage. All of these changes open up vast amounts of marketing opportunities to enterprising firms and individuals. Marketing to one’s perception of “age” rather than to the physical definition of age is an exciting new arena for marketers. Con: Age and cohorts are more important than age differences. People still pass through life as part of a “group” and experience the newness of life through cohort experiences and relate to others within their identifiable group. Marketing to cohorts extends the ability of the marketer to capitalize on share emotions, experiences, trends, and fads that have or had made lasting impressions on the cohort. Technology has changed so much in the last few decades and has influenced subsequent generations about expectations and potential, that one must market to the cohorts in order to identify with their experiences. People within a particular cohort seek information for purchase decisions from influencers within their cohort. Marketers must identify these influencers and tailor messages that affect their review of products and gain favor with them. Cohort effects can dominate age differences, as generational experiences and cultural context significantly shape consumer behavior and preferences. While age influences needs and wants, the unique experiences and values of a specific generation often drive more distinct consumer patterns and marketing strategies. MARKETING DISCUSSION What brands and products do you feel successfully “speak to you” and effectively target your age group? Why? Which ones do not? What could they do better? Suggested Response: Individual student answers will depend upon the products chosen, however these answers should refer to and include some of the key concepts presented in the chapter. Brands like Nike and Apple successfully target my age group by aligning their messaging with current trends, tech-savvy lifestyles, and aspirational values. In contrast, brands that use outdated design or fail to address modern concerns may miss the mark. To improve, they could adopt more contemporary aesthetics, engage with relevant issues, and leverage digital channels for better connectivity. Marketing Lesson: MICROSOFT Questions: Evaluate Microsoft’s strategy in good and poor economic times. Suggested Answer: Microsoft’s marketing strategy did not/does not change to reflect consumer’s changing buying priorities. For example, in 2008 in the midst of a recession, Microsoft was still plugging away with selling products at premium prices without delivering premium value for the money (VISTA)—hence the success of Apple’s campaign—premium products, but they deliver performance. In good times, people’s willingness to “buy” products based on prestige, popularity, and peer pressures is greater than in less robust economic times when priorities are evaluated more closely. Microsoft has to learn to adjust its marketing message to meet the demands/requirements of their consumers. Microsoft's strategy demonstrates resilience by focusing on innovation and diversification in good economic times, while prioritizing cost management and efficiency in poor economic conditions. Discuss the pros and cons of Microsoft’s most recent “I’m a PC” campaign. Is Microsoft doing a good thing by acknowledging Apple’s campaign in its own marketing message? Why or why not? Suggested Answer: Why not: Most branding and marketing professionals would say that Microsoft’s ad campaign just validates Apple’s marketing message and highlights the obvious differences between the two competing brands. Why: This current campaign did serve to highlight the critical point of difference of using a PC and that’s in its connectivity, universality of usage, and cost effectiveness. The "I'm a PC" campaign pros include humanizing PCs and countering Apple's narrative, but cons include potentially reinforcing brand comparison rather than differentiation. Acknowledging Apple can be strategic to address competitive messaging but risks emphasizing rivalry over unique value propositions. Marketing Lesson: WAL-MART Questions: Evaluate Wal-Mart’s new marketing campaign and tagline. Did the company make the right decision to drop “Always Low Prices. Always.”? Why or why not? Suggested Answer: No, Sam Walton had an effective strategy and message in that tag line—the consumer would always know what Wal-Mart stands for and how she/he can/ could save by shopping in their stores. With the change to the new line ““Save Money. Live Better,” the message becomes more ambigious for the consumer: What does “live better” mean? Wal-Mart’s core brand promise and corporate strategy is and was better expressed in the “always” tag line. Wal-Mart's decision to drop "Always Low Prices. Always." for a new marketing campaign and tagline should be evaluated based on whether the new message effectively resonates with current consumer preferences and reflects the company's evolving brand identity and values. Wal-Mart does very well when the economy turns sour. How can it protect itself when the economy is on the rise? Explain. Suggested Answer: Wal-Mart is vulnerable with aspirational buyers and shoppers and shoppers who shop for recreational, social, and entertainment reasons. Wal-Mart also does not appeal to those consumers/shoppers who are into the latest “fashions and colors.” As a result, for some Wal-Mart shoppers, shopping can be and is considered a “chore”— “I do it because I have to not because I want to.” For Wal-Mart to protect itself during periods of economic booms, they might consider a secondary brand of retail stores that would stock and market upscale and aspirational products. To try to “upscale” a WalMart store would only serve to confuse and alienate exisiting Wal-Mart customers. When the economy is on the rise, Wal-Mart can protect itself by diversifying its product offerings to cater to higher-end and premium segments, enhancing customer service and experience to compete with specialty retailers, investing in technology and e-commerce to improve convenience and digital presence, and focusing on sustainability and ethical sourcing to appeal to environmentally conscious consumers. Additionally, maintaining competitive pricing while improving product quality and selection will help retain customers who may have more disposable income during economic upturns. DETAILED CHAPTER OUTLINE Making marketing decisions in a fast-changing world is both an art and a science. To provide context, insight, and inspiration for marketing decision making, companies must possess comprehensive, up-to-date information about macro trends, as well as about micro effects particular to their business. Holistic marketers recognize that the marketing environment is constantly presenting new opportunities and threats, and they understand the importance of continuously monitoring, forecasting, and adapting to that environment. Firms are adjusting the way they do business for more reasons than just the economy. Virtually every industry has been touched by dramatic shifts in the technological, demographic, social-cultural, natural, and political-legal environments. In this chapter, we consider how firms can develop processes to identify and track important macroenvironment trends. COMPONENTS OF A MODERN MARKETING INFORMATION SYSTEM The major responsibility for identifying significant marketplace changes falls to the company’s marketers. Marketers have two advantages for the task: disciplined methods for collecting information, and time spent interacting with customers and observing competitors and other outside groups. Some firms have marketing information systems that provide rich detail about buyer wants, preferences, and behavior. Marketers also have extensive information about how consumption patterns vary across and within countries. Companies with superior information can choose their markets better, develop better offerings, and execute better marketing planning. Every firm must organize and distribute a continuous flow of information to its marketing managers. A marketing information system, or MIS, consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers. It relies on internal company records, marketing intelligence activities, and marketing research. Table 3.1 Information Needs Probes What decisions do you regularly make? What information do you need to make these decisions? What information do you regularly get? What special studies do you periodically request? What information would you want that you are not getting now? What information would you want daily? Weekly? Monthly? Yearly? What magazines and trade reports would you like to see on a regular basis? What topics would you like to be kept informed of? What data analysis programs would you want? What are the four most helpful improvements that could be made in the present marketing information system? INTERNAL RECORDS AND MARKETING INTELLIGENCE To spot important opportunities and potential problems, marketing managers rely on internal reports of orders, sales, prices, costs, inventory levels, receivables, and payables. Order-to-Payment Cycle The heart of the internal records systems is the order-to-payment cycle. Sales Information Systems Marketing managers need timely and accurate reports on current sales. Companies that make good use of “cookies,” records of Web site usage stored on personal browsers, are smart users of targeted marketing. Companies must carefully interpret the sales data so as not to draw the wrong conclusions. Databases, Data Warehouses, and Data Mining Companies organize their information into customer, product, and salesperson databases— and then combine their data. Companies warehouse these data for easy accessibility to decision makers. THE MARKETING INTELLIGENCE SYSTEM A marketing intelligence system is a set of procedures and sources that managers use to obtain everyday information about developments in the marketing environment. The internal records system supplies results data, but the marketing intelligence system supplies happenings data. Marketing managers collect marketing intelligence in a variety of different ways, such as by reading books, newspapers, and trade publications; talking to customers, suppliers, and distributors; monitoring social media on the Internet; and meeting with other company managers. A company can take several steps to improve the quality of its marketing intelligence: A company can train and motivate the sales force to spot and report new developments. A company can motivate distributors, retailers, and other intermediaries to pass along important intelligence. A company can hire external experts to collect intelligence. A company can network internally and externally. A company can set up a customer advisory panel. A company can take advantage of government data resources. 7) A company can purchase information from outside suppliers. COLLECTING MARKETING INTELLIGENCE ON THE INTERNET Thanks to the explosion of outlets available on the Internet, online customer review boards, discussion forums, chat rooms, and blogs can distribute one customer’s experiences or evaluation to other potential buyers and, of course, to marketers seeking information about the consumers and the competition. There are five main ways marketers can research competitors’ product strengths and weaknesses online. Independent customer goods and service review forums. Distributor or sales agent feedback sites. Combo-sites offering customer reviews and expert opinions. Customer complaint sites. Public blogs. Communicating and Acting on Marketing Intelligence In some companies the staff scans the Internet and major publications, abstracts relevant news, and disseminates a news bulletin to marketing managers. The competitive intelligence function works best when it is closely coordinated with the decision-making process. ANALYZING THE MACROENVIRONMENT Successful companies recognize and respond profitably to unmet needs and trends. Needs and Trends Enterprising individuals and companies manage to create new solutions to unmet needs. A fad is “unpredictable, short-lived, and without social, economic, and political significance.” A trend is a direction or sequence of events with momentum and durability. Trends are more predictable and durable than a fad. 1) A trend reveals the shape of the future and provide strategic direction. Megatrends are a “large social, economic, political, and technological changes [that] are slow to form, and once in place, they influence us for some time—between seven and ten years, or longer. Identifying the Major Forces The end of the first decade of the new century brought a series of new challenges: the steep decline of the stock market, which affected savings, investment, and retirement funds; increasing unemployment; corporate scandals; stronger indications of global warming and other signs of deterioration in the national environment; and of course, the rise of terrorism. These dramatic events were accompanied by the continuation of many existing trends that have already profoundly influenced the global landscape.1 Firms must monitor six major forces in the broad environment: demographic, economic, social–cultural, natural, technological, and political–legal. Demographic Economic Social–cultural Natural Technological Political–legal DEMOGRAPHIC ENVIRONMENT The main demographic force that marketers monitor is population because people make up markets. A) Marketers are keenly interested in the: Size and growth rate of populations in cities, regions, and nations. Age distribution and ethnic mix. Educational levels. Household patterns. Regional characteristics and movements. Worldwide Population Growth The world population is showing explosive growth: it totaled 6.9 billion in 2010 and will exceed 9 billion by the year 2040. Table 3.2 offers an interesting perspective. Population growth is highest in countries and communities that can least afford it. The less developed regions of the world currently account for 84 percent of the world’s population and are growing at 1 percent per year, whereas the population in the more developed countries is growing at only 0.3 percent per year. A growing population does not mean growing markets unless these markets have sufficient purchasing power. Marketing Insight: Finding Gold at the bottom of the pyramid There are 5 billion unserved and underserved people at the so-called “bottom of the pyramid.” One study showed that 4 billion people live on $2 or less a day. Firms operating in those markets have had to learn how to do more with less. Population Age Mix A) There is a global trend toward an aging population. National populations vary in their age mix. A population can be subdivided into six age groups: Preschool children School-age children Teens Young adults age 20 to 40 Middle-aged adults age 40 to 65 Older adults ages 65 and up Cohorts are groups of individuals born during the same time period who travel through life together. Ethnic and Other Markets Countries also vary in ethnic and racial make-up. At one extreme is Japan, where almost everyone is Japanese; at the other is the U.S., where people come from virtually all nations. Ethnic groups have certain specific wants and buying habits. Marketers must be careful not to over generalize about ethnic groups. Within each ethnic group are consumers quite different from each other. Asia’s ethnic diversity, reflected in Tables 3.4 and 3.5, shows that the 12 Asian countries have more than 20 major languages and 12 major religions. Educational Groups A) The population in any society falls into five educational groups: Illiterates High school dropouts High school degree holders College degree holders Professional degree holders Household Patterns The “traditional household” consists of a husband, wife, and children (sometimes grandparents). In Asia, extended families are common. In the Indian subcontinent, for example, the household may also include dependent brothers and sisters. In some countries, there may be “non-traditional” households which include single live-alones, adult live togethers of one or both sexes, single-parent families, childless married couples, and emptynesters. Nontraditional households are growing more rapidly than traditional households. Geographical Shifts in Population This is a period of great migratory movements between and within countries. For example, the establishment of Special Economic Zones along coastal China led to many inlanders moving to such cities as Shenzhen. Meanwhile, neighboring Hong Kongers have also flocked to the city for its better job prospects and lower cost of living. Economic Environment The available purchasing power in an economy depends on current income, prices, savings, debt, and credit availability. Marketers must pay careful attention to trends affecting purchasing power, because they can have a strong impact on business, especially for companies whose products are geared to high-income and price-sensitive consumers. Income Distribution There are four types of industrial structures: 1) Subsistence economies Raw-material-exporting economies Industrializing economies Industrial economies Marketers often distinguish countries with five different income-distribution patterns: Very low incomes Mostly low incomes Very low, very high incomes Low, medium, high incomes Mostly medium incomes Income, Savings, Debt, and Credit Consumer expenditures are affected by income levels, savings, debt, and credit availability. The Japanese have a high savings rate, about 13 percent of their income, or nearly three times more than U.S. consumers. Social–cultural Environment From our socio-cultural environment we absorb, almost unconsciously, a world view that defines our relationships to ourselves, others, organizations, society, nature, and the universe. Views of ourselves Views of others Views of organizations Views of society 5) Views of nature 6) Views of the universe High Persistence of Core Cultural Values Most Asians still believe in hard work, filial piety, marriage, and education. Core beliefs and values are passed on from parents to children and are reinforced by social institutions. Secondary beliefs and values are more open to change. Marketers have more chance of changing secondary values than core values. Family-planning marketers could make some headway arguing that people should get married later, rather than that they should not get married at all. Existence of Subcultures Each society contains subcultures, groups with shared values emerging from their special life experiences or circumstances. Natural Environment The deterioration of the natural environment is a major global concern. In many world cities, air and water pollution have reached dangerous levels. There is great concern about “greenhouse gases” in the atmosphere due to the burning of fossil fuels, about the depletion of the ozone layer due to certain chemicals, and about growing shortages of water. However, in many less developed Asian countries, such environmental concern is lacking. Air, water, and noise pollution are common. Corporate environmentalism recognizes the need to integrate environmental issues into the firm’s strategic plans. Marketing Insight: The Green Marketing Revolution Research by GfK Roper Consulting shows consumer expectations of corporate behavior with the environment have changed. Some of these expectations are higher than the demands they place on themselves. Technological Environment One of the most dramatic forces shaping people’s lives is technology. Innovation’s major long-run consequences are not always foreseeable. The marketer should monitor the following trends in technology: Accelerating pace of change Unlimited opportunities for innovation Varying R&D budgets Increased regulation of technological change Political–Legal Environment The political and legal environment consists of laws, government agencies, and pressure groups that influence various organizations and individuals. Sometimes these laws create new business opportunities. Increase in business legislation Growth of Special-Interest Groups Consumerist movement Privacy issues and identify theft will continue to be public policy in the near future Market Reform Corruption FORECASTING AND DEMAND MEASUREMENT Understanding the marketing environment and conducting marketing research (described in Chapter 4) can help to identify marketing opportunities. The company must then measure and forecast the size, growth, and profit potential of each new opportunity. Sales forecasts prepared by marketing are used by finance to raise cash for investment and operations; by manufacturing to establish capacity and output; by purchasing to acquire the right amount of supplies; and by human resources to hire the needed workers. If the forecast is off the mark, the company will face excess or inadequate inventory. Since it’s based on estimates of demand, managers need to define what they mean by market demand. The Measures of Market Demand Companies can prepare as many as 90 different types of demand estimates for six different product levels, five space levels, and three time periods. Each demand measure serves a specific purpose. The potential market is the set of consumers with a sufficient level of interest in a market offer. The available market is the set of consumers who have interest, income, and access to a particular offer. The target market is part of the qualified available market the company decides to pursue. The penetrated market is the set of consumers who are buying the company’s product. A Vocabulary for Demand Measurement MARKET DEMAND The marketer’s first step in evaluating marketing opportunities is to estimate total market demand. Market demand for a product is the total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program. Market demand is not a fixed number, but rather a function of the stated conditions. For this reason, we call it the market demand function. Its dependence on underlying conditions is illustrated in Figure 3.3(a). Some base sales—called the market minimum and labeled Q1 in the figure—would take place without any demand-stimulating expenditures. The distance between the market minimum and the market potential shows the overall marketing sensitivity of demand. We can think of two extreme types of market, the expansible and the nonexpansible. An expansible market, such as the market for racquetball playing, is very much affected in size by the level of industry marketing expenditures. A nonexpansible market—for example, the market for weekly trash or garbage removal—is not much affected by the level of marketing expenditures; the distance between Q1 and Q2 is relatively small. Organizations selling in a nonexpansible market must accept the market’s size—the level of primary demand for the product class—and direct their efforts toward winning a larger market share for their product, that is, a higher level of selective demand for their product. It pays to compare the current and potential levels of market demand. The result is the market-penetration index. Comparing current and potential market shares yields a firm’s share-penetration index. If this index is low, the company can greatly expand its share. MARKET FORECAST Only one level of industry marketing expenditure will actually occur. The market demand corresponding to this level is called the market forecast. MARKET POTENTIAL The market forecast shows expected market demand, not maximum market demand. Market potential is the limit approached by market demand as industry marketing expenditures approach infinity for a given marketing environment. Companies interested in market potential have a special interest in the product-penetration percentage, the percentage of ownership or use of a product or service in a population. COMPANY DEMAND Company demand is the company’s estimated share of market demand at alternative levels of company marketing effort in a given time period. It depends on how the company’s products, services, prices, and communications are perceived relative to the competitors’. COMPANY SALES FORECAST Once marketers have estimated company demand, their next task is to choose a level of marketing effort. The company sales forecast is the expected level of company sales based on a chosen marketing plan and an assumed marketing environment. A sales quota is the sales goal set for a product line, company division, or sales representative. It is primarily a managerial device for defining and stimulating sales effort, often set slightly higher than estimated sales to stretch the sales force’s effort. A sales budget is a conservative estimate of the expected volume of sales, primarily for making current purchasing, production, and cash flow decisions. It’s based on the need to avoid excessive risk and is generally set slightly lower than the sales forecast. COMPANY SALES POTENTIAL Company sales potential is the sales limit approached by company demand as company marketing effort increases relative to that of competitors. The absolute limit of company demand is, of course, the market potential. Estimating Current Demand We are now ready to examine practical methods for estimating current market demand. Marketing executives want to estimate total market potential, area market potential, and total industry sales and market shares. TOTAL MARKET POTENTIAL Total market potential is the maximum sales available to all firms in an industry during a given period, under a given level of industry marketing effort and environmental conditions. A common way to estimate total market potential is to multiply the potential number of buyers by the average quantity each purchases, times the price. AREA MARKET POTENTIAL Because companies must allocate their marketing budget optimally among their best territories, they need to estimate the market potential of different cities, states, and nations. Two major methods are the market-buildup method, used primarily by business marketers, and the multiple-factor index method, used primarily by consumer marketers. Market-buildup method calls for identifying all the potential buyers in each market and estimating their potential purchases. It produces accurate results if we have a list of all potential buyers and a good estimate of what each will buy. Unfortunately, this information is not always easy to gather. An efficient method of estimating area market potentials makes use of the North American Industry Classification System (NAICS), developed by the U.S. Bureau of the Census in conjunction with the Canadian and Mexican governments. Multiple-Factor Index Method Like business marketers, consumer companies also need to estimate area market potentials, but since their customers are too numerous to list they commonly use a straightforward index. Many companies compute area indexes to allocate marketing resources. The brand development index (BDI) is the index of brand sales to category sales. INDUSTRY SALES AND MARKET SHARES Besides estimating total potential and area potential, a company needs to know the actual industry sales taking place in its market. This means identifying competitors and estimating their sales. The industry trade association will often collect and publish total industry sales, although it usually does not list individual company sales separately. With this information, however, each company can evaluate its own performance against the industry’s. Another way to estimate sales is to buy reports from a marketing research firm that audits total sales and brand sales. Estimating Future Demand The few products or services that lend themselves to easy forecasting generally enjoy an absolute level or a fairly constant trend, and competition that is either nonexistent (public utilities) or stable (pure oligopolies). In most markets, in contrast, good forecasting is a key factor in success. Companies commonly prepare a macroeconomic forecast first, followed by an industry forecast, followed by a company sales forecast. How do firms develop their forecasts? They may create their own or buy forecasts from outside sources such as marketing research firms, which interview customers, distributors, and other knowledgeable parties. All forecasts are built on one of three information bases: what people say, what people do, or what people have done. SURVEY OF BUYERS’ INTENTIONS Forecasting is the art of anticipating what buyers are likely to do under a given set of conditions. For major consumer durables such as appliances, research organizations conduct periodic surveys of consumer buying intentions, ask questions like: Do you intend to buy an automobile within the next six months?, and put the answers on a purchase probability scale. COMPOSITE OF SALES FORCE OPINIONS When buyer interviewing is impractical, the company may ask its sales representatives to estimate their future sales. EXPERT OPINION Companies can also obtain forecasts from experts, including dealers, distributors, suppliers, marketing consultants, and trade associations. PAST-SALES ANALYSIS Firms can develop sales forecasts on the basis of past sales. Time-series analysis breaks past time series into four components (trend, cycle, seasonal, and erratic) and projects them into the future. Exponential smoothing projects the next period’s sales by combining an average of past sales and the most recent sales, giving more weight to the latter. Statistical demand analysis measures the impact of a set of causal factors (such as income, marketing expenditures, and price) on the sales level. Finally, econometric analysis builds sets of equations that describe a system and statistically derives the different parameters that make up the equations statistically. MARKET-TEST METHOD When buyers don’t plan their purchases carefully, or experts are unavailable or unreliable, a direct-market test can help forecast new-product sales or established product sales in a new distribution channel or territory. (We discuss market testing in detail in Chapter 20). 1 Indata, IN (June 2006), p. 27. Chapter 4 Conducting Marketing Research and Forecasting Demand LEARNING OBJECTIVES DEMAND In this chapter, we will address the following questions: What constitutes good marketing research? What are good metrics for measuring marketing productivity? How can marketers assess their return on investment of marketing expenditures? How can companies more accurately measure and forecast demand? CHAPTER SUMMARY Companies can conduct their own marketing research or hire other companies to do it for them. Good marketing research is characterized by the scientific method, creativity, multiple research methods, accurate model building, cost-benefit analysis, healthy skepticism, and an ethical focus. The marketing research process consists of defining the problem, decision alternatives, and research objectives, developing the research plan, collecting the information, analyzing the information, presenting the findings to management, and making the decision. In conducting research, firms must decide whether to collect their own data or use data that already exist. They must also choose a research approach (observational, focus group, survey, behavioral data, or experimental) and research instruments (questionnaire, qualitative measures, or technological devices). In addition, they must decide on a sampling plan and contact methods (by mail, by phone, in person, or online). Two complementary approaches to measuring marketing productivity are: (1) marketing metrics to assess marketing effects and (2) marketing-mix modeling to estimate causal relationships and measure how marketing activity affects outcomes. Marketing dashboards are a structured way to disseminate the insights gleaned from these two approaches within the organization. OPENING THOUGHT Marketing research is primarily a quantitative process in which consumers’ thoughts, actions, and purchase intentions are collected to form the basis of marketing decisions. As a result, marketing research involves translating actions, or behavioral intentions to numbers. Most students will relate to the more “exciting side” of marketing research—focus groups for instance, but will shy away from the qualitative side of number crunching. If the analysis is presented as a “means to an end” then the process should be accepted with greater enthusiasm. In today’s world of marketing, marketing managers are increasingly being asked to justify their expenditures. As a result, good marketing managers and good students of marketing should be very comfortable with the statistical and financial analyses presented in this chapter. To many of the students enrolled in marketing, the topics of statistics, analysis, and financial modeling will cause their eyes to “roll in their heads” as the thought of calculating numbers creates stress. The instructor is encouraged to emphasize to the students that good marketers need good numbers in order to make good decisions. TEACHING STRATEGY AND CLASS ORGANIZATION PROJECTS At this point in the semester-long marketing plan project, the students’ initial marketing research parameters should be completed, demand forecasted, and target market selections defined. Commission a marketing research study on topic(s) of interest to the students at your institution. During the course of the semester, have the students develop the questionnaire, collection method, conduct the survey, and tabulate the results. The students can be divided into groups for this project. Suggested topics can include the school or university student’s opinions of campus issues such as the athletic program, sale of alcohol, use of and availability of technology, or students’ perceptions of their current education experiences. Marketing Plan: Get students to determine, from available secondary data, estimates of total demand for each group’s consumer product or service for the next two years. Students will have to do Internet searches and determine industry trade association sources for such data; look at the various ways to evaluate marketing effectiveness and recommend the best way to determine the effectiveness of marketing efforts. Enter the answers to these questions in a written marketing plan or into the Sales Forecasting and Controls sections of Marketing Plan Pro. ASSIGNMENTS Ask students to contact a local marketing research firm in the area for the purpose of an interview regarding research techniques, methods, and the difficulties in conducting research. Pre-approve the set of questions prepared by the students prior to the appointment. Ensure that the students will be able to collect information from the research company regarding how information is collected. Once it is collected, what are some of the difficulties faced by the researcher in presenting this information to the client? In the Marketing Memo, Questionnaire Dos and Don’ts, the author lists 12 ways to phrase questions that will maximize unbiased responses. Prepare a set of questions (10–12 questions) for a hypothetical consumer products company trying to break into the toy business. Make sure that your questions meet each one of these 12 criteria. Comment on how easy or hard such question formatting is to accomplish. For the pros and cons to online research (p. 135), the author describes four advantages and three disadvantages for conducting online research. Selecting online research from the Web, each student is to comment on the “value” of this type of research vis-à-vis the advantages and disadvantages of the marketing memo. Specifically, do the negatives of online research, in their example, outweigh the positives? Can, and more importantly, should marketers develop marketing strategies from just the findings of online research? On the other hand, is more qualitative or quantitative research needed before strategy is defined? Have students read these sources on the concept of “neuromarketing” and comment on whether such brain research is ethical or not ethical because such research may lead to more marketing manipulation: Sources: Daryl Travis, “Tap Buyers’ Emotions for Marketing Success,” Marketing News, February 1, 2006, pp. 21–22. Deborah L. Vence, “Pick Someone’s Brain,” Marketing News, May 1, 2006. Louise Witt, “Inside Intent,” American Demographics (March 2004): pp. 34–39. Melanie Wells, “In Search of the Buy Button,” Forbes, September 1, 2003. Carolyn Yoon, Angela H. Gutchess, Fred Feinberg, and Thad A. Polk, “A Functional Magnetic Resonance Imaging Study of Neural Dissociations between Brand and Person Judgments,” Journal of Consumer Research, 33 (June 2006), pp. 31–40. Samuel M. McClure, Jian Li, Damon Tomlin, Kim S. Cypert, Latané M. Montague, and P. Read Montague, “Neural Correlates of Behavioral Preference for Culturally Familiar Drinks,” Neuron, 44 (October 14, 2004), pp. 379–387. END-OF-CHAPTER SUPPORT MARKETING DEBATE—What is the Best Type of Marketing Research? Many market researchers have their favorite research approaches or techniques, although different researchers often have different preferences. Some researchers maintain that the only way to really learn about consumers or brands is through in-depth, qualitative research. Others contend that the only legitimate and defensible form of marketing research involves quantitative measures. Take a position: ‘Marketing research should be quantitative’ versus ‘Marketing research should be qualitative’. Suggested Response: Pro: People are complex in their buying habits and purchase decision-making. Consumers, do not always have the capacity to voice, or understand how they decide to purchase a particular product or service. As a result, good marketing research should delve into the consumers’ “purchase decision trees” to understand hidden motivations and influences. Good qualitative research may undercover hidden purchase agendas, hidden uses for the product, or hidden opportunities for new, yet undeveloped products. Because of the freedom afforded to both researchers in their probes and consumers in their responses, qualitative research can often be a useful step in exploring consumers’ brand and product perceptions. The drawbacks of quantitative research, which include selection bias, response bias, and nonresponse, will always allow this type of research to be criticized for such shortcomings and their results discounted. Qualitative research, although having its own sets of disclaimers, closely describes the actions of consumers—that is what marketing is all about in the first place—to get someone to purchase something. Con: Quantitative research is the only accepted method of marketing research that can be scientifically defended. Quantitative research methods, techniques, and modeling have advanced substantially in recent years. Along with these advancements in techniques, quantitative research has improved in its predictability and accuracy due to more sophisticated mathematical processes. Quantitative research is also the most economically and timely research available today. With quantitative research, there is secondary data that can quickly be accessed further reducing time and cost considerations. As the world increases in its “speed of information” and “speed of living,” quick, accurate information becomes essential for a marketer to possess. With the proper framing of the research assignment and the proper set of specific research objectives, quantitative research is the most efficient method to gather the necessary information in the shortest time for the lowest cost. Marketing research should be qualitative to deeply understand consumer motivations, attitudes, and behaviors through rich, contextual insights. However, combining qualitative research with quantitative measures can provide a comprehensive view, as qualitative data offers depth and context while quantitative data provides statistical reliability and generalizability. MARKETING DISCUSSION When was the last time you participated in a survey? How helpful do you think was the information you provided? How could the research have been done differently to make it more effective? Suggested Response: Individual student answers will depend upon the survey chosen, however, the students should frame their responses in terms of some of the main topics of this chapter. The last time I participated in a survey was a few months ago, and I believe the information I provided was helpful for understanding consumer preferences. To enhance effectiveness, the research could incorporate more targeted questions, use a mix of qualitative and quantitative methods, and ensure clearer, more engaging survey design to improve response accuracy and participant engagement. Marketing Lesson: IDEO Why has IDEO been so successful? What is the most difficult challenge it faces in conducting its research and designing its products? Suggested Answer: IDEO strives to design products that consumers actively want. In many cases they have to “dig deep” because they are trying to create consumer-friendly solutions and the consumers often don’t know what they want or what they need. In order to achieve these consumer-friendly solutions, IDEO tries to uncover deep insights through a variety of human-centered research methods. IDEO has been successful due to its emphasis on human-centered design, fostering a creative and collaborative work culture, and its ability to innovate across various industries. The most difficult challenge it faces is likely maintaining consistency in delivering high-quality, innovative solutions amidst evolving technological and market demands. In the end, IDEO creates great solutions for companies that then receive all the credit. Should IDEO try to create more brand awareness for itself? Why or why not? Suggested Answer: Students’ answers will vary—some will say “yes” and others will say “no.” Both sets of answers should reflect on the nature of the company, its products, and its core competency. What does the company do very well? Designs solutions for others. Good students will note that IDEO has created and commands a very well defined “niche” in the business world and is very successful in that niche and any movement out of that niche can be difficult and dangerous. IDEO could benefit from creating more brand awareness to ensure recognition for its innovative contributions and attract more clients seeking its expertise. This recognition can enhance its reputation and potentially lead to more opportunities for impactful collaborations and projects. Marketing Lesson: PROCTER & GAMBLE Questions: How would market research be different or similar for P&G in countries such as China versus the U.S. where cultural norms and economic characteristics may be different? Suggested Answer: It would be different. In the U.S., P&G is operating in a mature market. Its research objectives would likely focus on issues like establishing customer loyalty, achieving differentiation through branding, developing new concepts or market segments. In China on the other hand, a high proportion of P&G’s research projects would need to focus on market assessment studies, consumer profiling, competitors and market size. Market research for P&G in China versus the U.S. would differ primarily in terms of cultural insights, consumer behaviors, and economic factors, necessitating localized strategies to effectively understand and cater to each market's unique dynamics. What do the two examples tell you about the quality of market research at P&G? Do you think P&G should outsource such market research and focus only on developing the products? Suggested Answer: P&G has a market research function called Consumer and Market Knowledge (CMK). Its goal is to bring consumer insight to decision making at all levels. Set up to work for P&G businesses worldwide, these CMKs are clearly heavy investments by the company and based on the two examples, have yielded quality results and financial returns. Therefore, P&G need not outsource its market research. The examples suggest P&G values robust market research to tailor strategies effectively. Whether to outsource depends on expertise gaps and cost-efficiency, but maintaining control over strategic insights is crucial for product development. If market research reveals differences in consumer preferences from country to country, do you think P&G should modify its products accordingly or ignore the research findings and offer a standardized product? Suggested Answer: Ultimately, it depends on the attractiveness and size of the market segments in each country. If the costs associated with modifying product offerings outweigh projected returns or profitability, P&G be better off offering a standardized product to specific market segments. P&G should modify its products accordingly to cater to local preferences revealed by market research, ensuring relevance and competitiveness in diverse markets rather than offering a standardized product that may not meet local needs effectively. DETAILED CHAPTER OUTLINE Good marketers need insights to help them interpret past performance as well as plan future activities. To make the best possible tactical decisions in the short run and strategic decisions in the long run, they need timely, accurate, and actionable information about consumers, competition, and their brands. Discovering a consumer insight and understanding its marketing implications can often lead to a successful product launch or spur the growth of a brand. THE MARKETING RESEARCH SYSTEM Marketing managers often commission formal marketing studies of specific problems and opportunities. Marketing insights provide diagnostic information about how and why we observe certain effects in the marketplace, and what that means to marketers. Good marketing insights often form the basis of successful marketing programs. Gaining marketing insights is crucial for marketing success. We define marketing research as the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing the company. Marketing research, however, is not limited to large companies with big budgets and marketing research departments. Small companies can hire the services of a marketing research firm or conduct research in creative and affordable ways, such as: Engaging students or professors to design and carry out projects. Using the Internet. Checking out rivals. Tapping into marketing partner expertise. Most companies use a combination of marketing research resources to study their industries, competitors, customers, and channel strategies. Marketing research firms fall into three categories: Syndicated-service research firms. Custom marketing research firms. Specialty-line marketing research firms. THE MARKETING RESEARCH PROCESS Effective marketing research involves six steps. Step 1: Define the Problem, the Decision Alternatives, and the Research Objectives Marketing management must be careful not to define the problem too broadly or too narrowly for the marketing researcher. 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 quantify demand. Some research is causal—its purpose is to test a cause-and-effect relationship. Step 2: Develop the Research Plan The second stage of marketing research is where we develop the most efficient plan for gathering the needed information and what that will cost. To design a research plan, we need to make decisions about 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 freshly gathered for a specific purpose or for a specific research project. Research Approaches Marketers collect primary data in five main ways: Observational Research: Fresh data can be gathered by observing the relevant actors and settings. Ethnographic Research: is a particular observational research approach that uses concepts and tools from social sciences to provide deep understanding of how people live and work. Focus Group Research: A focus group is a gathering of 6 to 10 people carefully selected based on certain demographic, psychographic, or other considerations and brought together to discuss various topics of interest at length. A professional research moderator provides questions and probes based on the marketing managers’ discussion guide or agenda. Moderators try to discern consumers’ real motivations and why they say and do certain things. The sessions are typically recorded. Survey Research: Companies undertake surveys to learn about people’s knowledge, beliefs, preferences, and satisfaction, and to measure these magnitudes in the general population. Marketing Memo: Conducting Informative Focus Groups Focus groups allow marketers to observe how and why consumers accept or reject concepts, ideas, or any specific notion. The key to using focus groups successfully is to listen. Many firms are substituting observational research for focus groups. 1) Behavioral Data Research: Customers leave traces of their purchasing behavior in store scanning data, catalog purchases, and customer databases. Much can be learned by analyzing these data. Actual purchases reflect consumers’ preferences and often are more reliable than statements they offer to market researchers. Experimental Research: The most scientifically valid research is experimental research. A) Designed to capture cause-and-effect relationships by eliminating competing explanations of the observed findings. B) Experiments call for: i. Selecting matched groups of subjects. ii. Subjecting them to different treatments. iii. Controlling extraneous variables. iv. Checking whether observed response differences are statistically significant. Research Instruments Marketing researchers have a choice of three main research instruments in collecting primary data: questionnaires, qualitative measures, and mechanical devices. 1) Questionnaires A questionnaire consists of a set of questions presented to respondents. Because of its flexibility, is by far the most common instrument used to collect primary data. Questionnaires need to be carefully developed, tested, and debugged before being administered. The researcher carefully chooses the questions, wording, and sequence. The form of the question can influence the response. Marketing researchers use both closed-ended and open-ended questions. Table 4.1 Types of Questions MARKETING MEMO Questionnaire Do’s and Don’ts 2) Qualitative Measures Some marketers prefer more qualitative methods for gauging consumer opinions because consumer actions do not always match their answers to survey questions. Qualitative research techniques are relatively unstructured measurement approaches that permit a range of possible responses. Qualitative research techniques are a creative means of ascertaining consumer perceptions that may otherwise be difficult to uncover. Because of the freedom it affords both researchers in their probes and consumers in their responses, qualitative research can often be an especially useful first step in exploring consumers’ brand and product perceptions. Qualitative research does have its drawbacks. Marketers must temper the in-depth insights that emerge with the fact that the samples are often very small and may not necessarily generalize to broader populations. And different researchers examining the same qualitative results may draw very different conclusions. Some other popular qualitative research approaches to get inside consumers’ minds and find out what they think or feel about brands and products include: a) word associations projective techniques visualizations brand personification laddering Marketing Insight: Getting Into Consumers’ Heads with Qualitative Research Here are some commonly used qualitative research approaches to get inside consumers’ minds and find out what they are thinking or feeling about brands and products: Word associations Projective techniques Visualization Brand personification Laddering 3) Technological Devices Technological devices are occasionally used in marketing research. Galvanometers Tachistoscope Audiometers Technology has now advanced to such a degree that marketers can use devices such as skin sensors, brain wave scanners, and full body scanners to get consumer responses. Technology has replaced the diaries that participants in media surveys used to keep. Audiometers attached to television sets in participating homes now record when the set is on and to which channel it is tuned. Marketing Insight: Understanding Brain Science As an alternative to traditional consumer research, some researchers have begun to develop sophisticated techniques from neuroscience that monitor brain activity to better gauge consumer responses to marketing stimuli. Sampling Plan After deciding on the research approach and instruments, the marketing researcher must design a sampling plan. This calls for three decisions: Sampling unit: Whom should we survey? Define the target population that will be sampled. Sample size: How many people should be surveyed? Large samples give more reliable results than small samples. Sampling procedure: How should we choose the respondents? Probability sampling allows the calculation of confidence limits for sampling error. Contact Methods Once the sampling plan has been determined, the marketing researcher must decide how to contact the subjects: by mail, by telephone, in person or online. Mail Contacts The mail questionnaire is one way to reach people who would not give personal interviews or whose responses might be biased or distorted by the interviewers. A) Mail questionnaires require simple and clearly worded questions. B) The response rate is usually low and/or slow. Telephone Contacts Telephone interviewing is a good method for gathering information quickly. Personal Contacts Personal interviewing is the most versatile method. The interviewer can ask more questions and record additional observations about the respondent. It is the most expensive method. Subject to interviewer bias. Personal interviewing takes two forms: 1) Arranged interviews. 2) Intercept interviews. Online Contacts: There is an increase in the use of online methods. Marketers can also host a real-time consumer panel or virtual focus group or sponsor a chat room, bulletin board, or blog and introduce questions from time to time. They can ask customers to brainstorm or have followers of the company on Twitter rate an idea. Online communities and networks of customers serve as a resource for a wide variety of companies. There are a number of pros and cons to online research. Here are some advantages: Online research is inexpensive. Online research is fast. People tend to be honest and thoughtful online. 4) Online research is versatile. Some disadvantages include: Samples can be small and skewed. Online panels and communities can suffer from excessive turnover. Online market research can suffer from technological problems and inconsistencies. Step 3: Collect the Information The data collection phase of marketing research is generally the most expensive and the most prone to error. Marketers can also host a real-time consumer panel or virtual focus group or sponsor a chat room, bulletin board, or blog and introduce questions from time to time. They can ask customers to brainstorm or have followers of the company on Twitter rate an idea. Internationally, one of the biggest obstacles to collecting information is the need to achieve consistency. Step 4: Analyze the Information The next-to-last step in the process is to extract findings by tabulating the data and developing summary measures. Step 5: Present the Findings The researcher presents findings relevant to the major marketing decisions facing management. Step 6: Make the Decision The managers who commissioned the research need to weigh the evidence. Some organizations are using a marketing decision support system to help marketing mangers make better decisions. A marketing decision support system (MDSS) is defined as a coordinated collection of data, systems, tools, and techniques with supporting software and hardware, by which, an organization gathers, interprets relevant information from business and environment, and turns it into a basis for marketing action. Table 4.2 Seven characteristics of Good Marketing Research Scientific method Research creativity Multiple methods Interdependence of the type of information sought Value and cost of information Healthy skepticism Ethical marketing Overcoming the Barriers to the Use of Marketing Research In spite of the rapid growth of marketing research, many companies still fail to use it sufficiently or correctly, for several reasons: MARKETING RESEARCH IN ASIA The conduct of marketing research in Asia presents its own unique set of challenges. Indeed, much data on Asian markets — particularly less economically developed countries—is non-existent, unreliable, or very costly to collect. Thus, companies going abroad face a problem: they need reliable data because they know little about other countries’ cultures, distribution, and economics; yet the data often are poor for making key decisions. Researchers should also be attuned to the high rate of change in the Asian region. Information may thus be outdated very quickly. Marketing research is most useful insofar as it can forecast patterns of behavior. Where rates of change are rapid, the future is more difficult to predict. MEASURING MARKETING PRODUCTIVITY Marketers are facing increased pressure to provide clear, quantifiable evidence to senior management as to how their marketing expenditures help the firm to achieve its goals and financial objectives. An important task of marketing research is to assess the efficiency and effectiveness of marketing activities. Marketing research can help address this increased need for accountability. A) Two complementary approaches to measure marketing productivity are: 1) Marketing metrics to assess marketing effects. Marketing-mix modeling to estimate causal relationships and how marketing activities affects outcomes. Marketing dashboards are a structured way to disseminate the insights gleaned from these two approached within an organization. Marketing Metrics Marketing metrics is the set of measures that helps them quantify, compare, and interpret their marketing performance. Short-term results Short-term results often reflect profit-and-loss concerns as shown by sales turnover, shareholder value, or some combination of the two. Changes in brand equity Brand-equity measures could include customer awareness, attitudes, and behaviors; market share; relative price premium; number of complaints; distribution and availability; total number of customers; perceived quality, and loyalty and retention. Table 4.3 summarizes a list of popular internal and external metrics. Marketing-Mix Modeling Marketing-mix models analyze data from a variety of sources, such as retailer scanner data, company shipment data, pricing, media, and promotional spending data. Although marketing-mix modeling helps to isolate effects, it is less effective at assessing how different marketing elements work in combination and has three shortcomings: Marketing-mix modeling focuses on incremental growth instead of baseline sales or long-term effects. The integration of important metrics such as customer satisfaction, awareness, and brand equity into marketing-mix modeling is limited. Marketing-mix modeling generally fails to incorporate metrics related to competitors, the trade, or the sales force (the average business spends far more on the sales force and trade promotion than on advertising or consumer promotion). Marketing Dashboards Firms are also employing organizational processes and systems to make sure they maximize the value of all these different metrics. Management can assemble a summary set of relevant internal and external measures in a marketing dashboard for synthesis and interpretation. Some companies are also appointing marketing controllers to review budget items and expenses, such as: Customer-performance scorecard Stakeholder-performance scorecard Table 4.4 Sample Customer Performance Scorecard Measures Marketing Insight: Marketing Dashboards to Improve Effectiveness and Efficiency States that there are four common measurement “pathways” marketers are pursuing today: customer metrics, unit metrics, cash-flow metrics, and brand metrics (see Figure 4.2). Instructor Manual for Marketing Management: A South Asian Perspective Philip Kotler, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha 9789810687977, 9780132102926