Decision Making and Market Research
In this article the authors of the 3rd edition of Market Research in Practice highlight the importance of basing business decisions on fact, rather than anecdotal experience or intuition.
Managers are always making decisions based on their experience. Many facts are known to them and they have their intuition. This may lead them to believe that the way forward is obvious, or the size of the decision does not merit that a huge sum of money should be spent on fact finding. It could be that action is required today and there is no time for formalized research even though it would be welcome. There is nothing wrong with intuition and ‘common sense’ and these are naturally part of decision making in business. However, where the decisions require large financial resources and where the costs of failure are high, there is a need for decision making based on robust and reliable data. Companies operating in large and international markets that are changing apace cannot rely on anecdotal and intuitive approaches to decision making. This is the purpose of market research - to reduce business risk.
It is perhaps surprising that major investments and strategic decisions are still made without adequate information. The reasons for this may include some professional failures on the part of market research practitioners such as an inability or unwillingness to be involved in decision making, as well as differences in corporate cultures. In the United States and northwest Europe, market research is almost standard practice as an aid to making large decisions. However in many parts of the world, market research is used less and there is more reliance on hunch and intuition. This is partly historical in that market research is less established and still finding its feet in these regions. It may also be because of cultural diffidence and suspicion about a methodology that people believe may not be a reliable means of getting to the heart of the matter.
In consumer and business-to-business markets, the decisions that research is used to guide tend to be similar. Whether the product is soap powder or servo motors, research could cover subjects such as the product specification and its relation to consumer needs and requirements, branding, pricing, distribution methods, advertising support, market definition and segmentation, forecast sales levels and so on. Each of these decisions requires information from the market to reduce business risk.
The main applications for market research can be summarized as follows:
- Making improvements to customer satisfaction by ensuring that their needs are met.
- Recognising different groups of customers so that they can be addressed accordingly and are not all treated as the same.
- Determining the optimum price for a product so that money is not left on the table.
- Evaluating new concepts and products to ensure that they can be launched successfully and meet people’s needs.
- Working out how to make a brand stand out and be desirable in a competitive market.
- Finding out how customers and potential customers learn of products and what influences them in their choices.
- Justifying investments, such as in new plant or machinery, by indicating the market size and trends.
- Finding new territories in which to expand and working out how to do so.
These applications for market research are not exhaustive. Market research can be used specifically to assess the competition, to determine employee satisfaction, to explore the values of a brand, to determine readership, examine sources of purchase – indeed it can be used to obtain a deeper understanding of the dozens of marketing-related decisions faced in business every day. Whether or not it is used depends on the culture of the organization, the financial implications of the decision and the speed with which a result is required. A decision linked to an investment of a small number of dollars and where the results are required tomorrow is less likely to be researched than one that has massive financial ramifications and where time is available to think about it.