Ask most small business owners the best way to improve sales of their products or services, and you will probably hear a wide range of responses: “Reduce the prices,” “Increase your advertising,” “Improve service” and so on. One unlikely reply would be “Conduct some marketing research.”
While marketing research has been a driving force in large companies for years, small businesses have been reluctant to use it. Marketing research can be the key to future success for many small businesses if the buyer or user of the research understands its parameters, strengths and limitations. Failure to comprehend the proper use of marketing research can result in useless, or even worse, damaging information.
What is Marketing Research?
Businesses of all sizes are constantly seeking information about their customers, their competitors, and the market environment in which they operate. Marketing research is basically the gathering of this data. However, all “gathering of information” does not qualify as marketing research.
The American Marketing Association defines marketing research as the “systematic and objective approach to gathering marketing information which — when processed, analyzed and interpreted — will help identify problems and opportunities that allow for better-informed, lower-risk decisions.”
The key to this definition is that the information is gathered, processed, analyzed and interpreted in a systematic and objective fashion. Marketing research stresses how the information is obtained and evaluated as much as what is actually gathered.
At first thought, it might not seem too difficult to obtain marketing information. For example, the owner of a video store might ask some customers whether they would rent more movies if the price was reduced by $1.00. Using this feedback, the owner might decide to reduce the price, increase the number of rentals and, overall, make more money. Unfortunately, the people queried may not be typical of all customers. Even if the owner was lucky enough to talk to a representative sample, how does he or she know that the customers are telling the truth or that they will, in fact, rent more movies? This instance of collecting marketing information lacks the objectivity and uniformity necessary to be classified as marketing research. The owner in this case may, in fact, lose money by acting upon it.
How is Marketing Research Used?
Marketing research can be used to meet nearly all the marketing information needs of the small business person. Every area from developing a business plan to designing an effective advertising program can benefit from the use of carefully planned and executed research. Specific examples of how marketing research can guide and assist small business people include:
Developement of Business Plans:When you first sit down with that blank piece of paper and dream of owning your own business, you should be asking yourself questions such as: What am I going to sell? Will people buy what I sell? How much should I charge? Where should I locate? How much competition is there and who are they? Questions such as these should be at the heart of any effective business plan, and marketing research can help you answer them.
Let’s say, for example, you’ve decided to turn your passion for fishing into your livelihood, and open your own tackle and equipment store. You feel there is a need for such a service, and are ready, willing and able to jump at the opportunity. One of your first steps might be finding out how many other tackle shops are in your area to get a feel for the level of competition. A quick glance through your local Yellow Pages would readily supply you with this information. Congratulations! You’ve just completed your first marketing research project. As the questions become more difficult to answer, the marketing research must become more sophisticated. For example, although you might be able to partially determine the demand for a fishing tackle shop by talking to your neighbors and your “fishing buddies,” this won’t tell you how all the people in your area feel (and you know how those fisherman lie!). A better approach would be to commission or conduct a scientific survey of a representative sample of all local consumers.
Much of the background information necessary for a useful, working business plan can be collected using marketing research.
New Product of Offering:
Many new product lines or special offers (“10% Off!”) are the results of careful marketing research, which can determine customer needs and wants and allow you to supply them with just the “right” product or service. Research can be used to determine the impact of special sales programs, discount offers or even introducing a new product before the expense of doing so is incurred.
Pricing is a crucial marketing element in all businesses, whether large or small, and marketing research can supply precise information for pricing decisions. Well designed research can determine the true trade-off between price and the amount of sales before committing to a specific sales program.
Many small business owners are very concerned with the promotion and advertising of their businesses. Considering the cost of advertising today, their concerns are well founded. One of the most frequently asked questions is “how effective is my advertising?” This can be determined with many types of formal and informal research techniques. For example, a separate telephone line with a number that appears only in your Yellow Pages ad can be installed. By placing a tally sheet next to the phone, a count can be recorded every time a call comes in on that line. By the end of the month, you will be able to tabulate exactly how many calls are generated by your Yellow Pages ad, and can then determine its effectiveness.
These are just a few of the many possible applications marketing research has for small businesses.
What are the Various Types of Marketing Research?
All marketing research falls into two basic categories: secondary and primary. Secondary research involves literature searches, article reviews and analysis of existing, available data. While secondary research is limited to the information you have on hand, it is usually much cheaper than primary research and can be done by small businesses themselves.
There are two general types of primary research. Qualitative research is used for developing new ideas or to get a “gut feeling” for a given subject or problem. Quantitative research primarily involves surveys based on representative samples where data is collected using mail, telephone or personal interviews. Results from quantitative studies can be projected to entire populations and therefore used in predicting.
Nearly all qualitative research is done using focus groups. These groups consist of eight to ten carefully selected and recruited individuals who participate in a directed discussion concerning some issue. The specifications for recruiting these participants are based on the objectives of the study. For example, the owner of a gardening service interested in expanding into a new geographic territory might want to explore the demand for these services beforehand by conducting focus groups among home-owners living in the area where the expansion is planned.
The discussion itself is designed and led by a professional researcher called a focus group moderator. The moderator follows a specially prepared script known as a moderator’s guide, which is developed with assistance from the client and outlines the issues to be covered. It is important that an independent, professional moderator be used to ensure objectivity, and that all the relevant issues are covered.
Focus groups are often conducted in special facilities equipped with one-way mirrors and observation rooms so the client can observe the discussions first hand without disturbing the participants. The discussions are either audio or videotape recorded so the moderator does not have to take notes. After conducting the groups, the moderator will listen to the tapes, summarize the key points and present the client with a final report on the findings.
In most cases, three focus groups are conducted for a single research project. It would be too risky to arrive at any conclusions based on the results of just a single group, since the chances of only one group being representative of the population are quite slim. While two groups are better than one, many times the findings from the second group vary greatly from those of the first. A third group strikes a balance between the first and second and allows the client a better perspective.
While focus groups are a legitimate form of marketing research, they are also the most misused and incorrectly applied of all existing techniques. They should only be used for exploration and generating new ideas, and never considered to represent the opinions of the entire population. The results from focus groups cannot be projected in any way.
On the other hand, focus groups are an excellent method of flushing out key issues regarding a new idea or potential product or service. They can also serve as the first stage of the research process by identifying key points to be addressed in subsequent, quantitative surveys.
When people speak of marketing research, they are usually referring to quantitative research. Quantitative research involves a survey of a selected sample of a specific group using mail, telephone or in-person interviews. Data is collected by means of a carefully constructed questionnaire that is pre-tested before the actual survey. Completed questionnaires are edited, and verbatim responses to open-ended questions coded using pre-developed categories. The data from the questionnaires is entered into a computer for tabulation of results. Final computer output, or “tables,” are then ready for analysis.
It is important for both research buyers and users to understand the strengths and weaknesses of each of the various research approaches so they can select the technique best meeting their needs at a cost within their budgets.
Mail Surveys were extremely popular during the 1950s and 60s when the costs of telephone interviewing were prohibitively high. Mail surveys are still widely used today, although the advent of the WATS telephone service has made telephone surveys much more cost competitive.
The major strength of mail surveys is still their relative low price. For the price of postage, materials and printing, a small business can conduct a very cost-effective research study. In addition, since the respondent actually receives materials from the researcher, illustrative or test documents can be included in the mail-out.
The major drawback to mail surveys is their very low rate of return, or response rate. Even with incentives such as money, and second mailings, most end up with about a 5% to 15% response rate. This means you do not know the opinions of 85% to 95% of the people you wish to study.
In addition, those individuals who do not respond to a mail survey are often different than those who do. For example, older retirees are more likely to have the time and inclination to fill out and return a questionnaire while single people between 25 and 35 years old are much less likely to do so.
Different research techniques such as incentives and telephone reminders can boost the response rate to as much as 50%, but all these methods add to the price of the study, defeating the purpose of selecting this technique in the first place.
Many of us are familiar with in-person interviews. Every ten years the U.S. Census Department knocks on doors to conduct in-person interviews and find out how the population has changed. In-person, or personal interviews, involve a face-to-face meeting between an interviewer and a respondent. Using a prepared questionnaire, the interviewer asks the respondent a series of questions and carefully records the answers. These interviews take place either at the respondent’s home or place of business, or at a well-traveled location such as a shopping mall.
Unlike mail surveys, personal interviews usually result in a very high completion rate. Response rates as high as 95% are not unheard of. In addition, in-person interviews allow the respondent to physically come in contact with proposed products, services or advertising under the guidance of the interviewer. This is why in-person interviews are often used in researching advertising copy or packaging designs.
The biggest problem with in-person interviews is their extremely high price. Since an interviewer is required to visit the respondents at their home or business or track them down in shopping malls, a great deal of interviewing time is required. Even at low hourly rates for interviewers, an in-person interview currently costs at least $100. Considering that most surveys use a sample size of at least 100 people, this approach can get very expensive.
In recent years, two major developments have given rise to the widespread use of telephone surveys in marketing research. First, the introduction of WATS lines and “Least Call Routing” using different long distance companies has reduced telephone toll charges. Second, computers have been introduced into the telephone interviewing process. Interviewers now sit in front of a computer screen and read from a pre-programmed questionnaire that appears in front of them. Respondents’ replies are recorded directly into the computer system using a keyboard, which saves time in data entry and coding. Results are immediately available at any point during the survey. These “Computer Assisted Telephone Interviewing” or CATI systems are becoming widely used by research companies and allow for faster, cheaper and more reliable interviewing.
While telephone surveys are much less expensive than in-person interviews, they are usually slightly higher in price than a straight mail survey. Response rates with telephone surveys are much better than mail, usually 50% and higher, which makes them the ideal choice for most research applications.
Selecting a Professional Firm or Consultant
If you do decide to seek out the service of a professional marketing research firm or consultant, the following steps will save you both time and money:
Think and rethink the question or problem to be solved. In many instances, clarification of the problem will solve the problem itself. Write down on paper the general purpose of the research and the specific objectives you wish to accomplish. Indicate the target market and describe it as completely as possible. Make a list of the questions you need answered. The research study should be absolutely clear in your mind before you share it with a marketing researcher.
Prepare a Request for Proposal (RFP).
An RFP outlines all aspects of the research and asks a research company to respond with a proposal and bid. It should include all background information on the problem and proposed project, the purpose and objectives, and what you hope to do with the results. If you have budgetary limitations, spell them out.
Talk to several research companies or consultants. As with any other type of professional, marketing researchers vary according to size, price, areas of expertise and even personalities. Contact several companies, using the Yellow Pages or through your local chapter of the American Marketing Association (AMA) or the American Association of Public Opinion Research (AAPOR). Talk to enough firms until you find several with which you are comfortable. Don’t hesitate to ask for background materials, references or examples of past work.
Send RFPs to three firms. While it might be appealing to send RFPs to a dozen or more firms with the hope of getting back an excellent proposal at a very low price, remember, you have to review and evaluate all of them. Three should give you a perspective on the range of prices and ideas. Ask to have a written proposal returned to you on a set date, including a bid and work schedule.
Evaluate every aspect of all the research proposals. When you first look at the proposals, you may be inclined to select a company based solely on price. This may be a big mistake, and you will learn first-hand that “you get what you pay for.” Evaluate the approach each firm has suggested, determine how well the problem is understood, and see if the price makes sense. If one of the three firms claims it could conduct 150 personal interviews for you at $125 each, while the other two suggest telephone interviews at $25 each, you might want to call the first research firm and verify the project was fully understood.
Select a research firm and notify. Once you have made your decision, respond in writing to the firm and set a time to meet and further discuss the project. Make sure you stay involved throughout the project, and that communication channels are open between the researcher and yourself. There is nothing worse to have a major “surprise” at the end of the study, such as cost over-runs or incomplete or incorrect data. As with any business tool, the more you understand the proper application of marketing research, the more valuable it becomes to you and your company.
Marketing Research to Buy or Not to Buy?
In some cases, such as reviewing the Yellow Pages to determine the level of competition for a specific geographic area, marketing research can easily be accomplished by small business owners themselves. However, as the research becomes more complicated, the small business person may wish to turn to an expert in the field.
Numerous research firms exist throughout California and the U.S. Some conduct millions of dollars of research each month, such as A.C. Nielsen and its monitoring of television audiences. Others are smaller, independent firms that serve specific geographic areas such as Los Angeles or the San Francisco Bay Area.
Although marketing research can be considered a bargain, especially if the results of a study greatly increase revenues or cut costs, good marketing research is not cheap. Marketing researchers are trained, experienced professionals, not unlike attorneys or architects. Accordingly, the first-time research buyer may be startled by the prices for research services. For example, focus groups run about $3,000 each, and a telephone survey could range anywhere from $5,000 to $25,000 or more, depending on the number of interviews and length of the questionnaire.
Because costs of this size represent a substantial investment for most small businesses, owners should ask themselves the following questions before ever contacting a research firm:
- Is the research really necessary? In some cases, maybe a “best guess” would prove just as effective as a well-designed research project. In other cases, however, research may be absolutely necessary. For example, many lending institutions require a feasibility study of a proposed business idea, using marketing research, before they make any loans.
- Is the research worth doing? Will the outcome of the research result in a benefit exceeding the cost of the research itself? Spending $20,000 on a research project to realize an increase in company revenues of $1,000 a year simply doesn’t make sense.
- Can I do the research myself? This is probably the hardest question to answer. You must be able to determine the complexity of the research problem and the risk involved if the research was not done. To strike an analogy, several companies offer do-it-yourself legal guides that allow the small business owner to create contracts, incorporate and so forth. If you feel comfortable with this type of approach, fine; if not, see an attorney. The same holds true for marketing research.