The Marketing Concept

To efficiently accomplish their goals, firms today have adopted the marketing concept, which requires (1) a consumer orientation, (2) a goal orientation, and (3) a systems orientation. A consumer orientation means that firms strive to identify the people (or firms) most likely to buy their product (the target market) and to produce a good or offer a service that will meet the needs of target customers most effectively in the face of competition. The second tenet of the marketing concept is goal orientation; that is, a firm must be consumer-oriented only to the extent that it also accomplishes corporate goals. The goals of profit-making firms usually center on financial criteria, such as a 15 percent return on investment.

The third component of the marketing concept is a systems orientation. A system is an organized whole—or a group of diverse units that form an integrated whole—functioning or operating in unison. It is one thing for a firm to say it is consumer-oriented and another actually to be consumer-oriented. First, systems must be established to find out what consumers want and to identify market opportunities. As you will see later, identifying target market needs and finding market opportunities are the tasks of marketing research. Next, this information must be fed back to the firm. Without feedback from the marketplace, a firm is not truly consumer-oriented.

Opportunistic Nature of Marketing Research

Marketing research is an excellent tool for discovering opportunities in the marketplace. Midmarket hotel chains, such as Holiday Inn, (especially those with less than 150 rooms), often don’t generate enough traffic to support a full-service restaurant. Holiday Inn surveyed 10,000 guests and found that its guests were mostly business people, sales people, and government employees. These people revealed that they had no desire to simply sit in their room. They wanted to be around other people.

Holiday Inn management decided that the bar should play a bigger role at the hotels. The social hub would tailor Holiday Inn’s lunch and dinner menus to bar fare that can be shared, such as gourmet meatballs, sesame chicken wings, hamburgers, and a few significant entrees, such as steaks and salmon club sandwiches.

Those changes allow for more food to be served by the bar staff, which, in turn, allows Holiday Inn’s franchisees to limit their labor costs by reducing restaurant staff, especially at slow times of the day.²

External Marketing Environment

Over time, the marketing mix must be altered because of changes in the environment in which consumers and businesses exist, work, compete, and make purchasing decisions. Some new consumers and businesses will become part of the target market, while others will drop out of the market; those who remain may have different tastes, needs, incomes, lifestyles, and purchase habits than the original target consumers.

Millennials, for example, born from 1979 to 1994, are wedded to smartphones and apps. They are also the biggest fans of mobile shopping. This generation likes to hit the road, taking 4.2 trips per year compared with 2.9 for the older generations. Millennials also love to share to the delight of Airbnb and Zipcar.³

Although managers can control the marketing mix, they cannot control elements in the external environment that continually mold and reshape the target market. Unless management understands the external environment, the firm cannot intelligently plan its future, and organizations are often unaware of the forces that influence their future.

Marketing Research Defined

Now that you have an understanding of how marketing research fits into the overall marketing system, we can proceed with a formal definition of the term, as stated by the American Marketing Association:

Marketing research is the function that links the consumer, customer, and public to the marketer through information—information used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process. Marketing research specifies the information required to address these issues, designs the method for collecting information, manages and implements the data collection process, analyzes the results, and communicates the findings and their implications.

We prefer another definition: Marketing research is the planning, collection, and analysis of data relevant to marketing decision making and the communication of the results of this analysis to management.

Importance of Marketing Research to Management

Marketing research can be viewed as playing three functional roles: descriptive, diagnostic, and predictive. Its descriptive function includes gathering and presenting statements of fact. What is the historic sales trend in the industry? What are consumers’ attitudes and beliefs toward a product? Opening a pack of bacon is a messy job. Bacon lovers have to reach into the package, and if they only pull out a few slices, there’s no easy way to store the remainder. Oscar Mayer marketing researchers hear plenty from consumers about what they disliked about its former bacon packaging. So marketers figured the best solution would be a packaging innovation that eliminated the chore of placing the opened pack in a resealable plastic bag or wrapping it in plastic or foil. This unwanted task was done so that the last piece of bacon would be as fresh as the first.

Oscar Mayer Center Cut Bacon was introduced in a new “Stay-Fresh Reclosable Tray.” The flip-top lid allows easy access to the bacon inside. The top snaps closed, making it readily resealable. The flat tray makes for simplified storage in the refrigerator.

The second role of research is the diagnostic function, wherein data and/or actions are explained. For example, what was the impact on sales when the Oscar Mayer package design was changed? How can product/service offerings be altered to better serve customers and potential customers? Since kids eat over 5 billion ounces of ketchup each year, Heinz decided that the heavy users (kids) should have a lot to say (via marketing research) about how to make ketchup fun. Heinz listened and watched children using ketchup, which resulted in a new bottle design and name selection. The true ketchup connoisseurs helped create Heinz EZ Squirt ketchup!

The final role of research is the predictive function. How can the firm best take advantage of opportunities as they arise in the ever-changing marketplace? Bonobos is the largest apparel brand ever built on the Web in the United States. They attribute customer dialogue (marketing research) for helping them create a signature line of better-fitting men’s pants. Their research brings the customer into the design process to create successful product offerings. Marketing research has identified different target markets for Bonobos such as the “Sporty Guy,” “Guy Next Door,” and “Men Who Wear Red Pants.”

Understanding the Ever-Changing Marketplace

Marketing research also helps managers to understand trends in the marketplace and to take advantage of opportunities. Marketing research has been practiced for as long as marketing has existed. The early Phoenicians carried out market demand studies as they traded in the various ports on the Mediterranean Sea. Marco Polo’s diary indicates he was performing a marketing research function as he traveled to China. There is evidence that the Spanish systematically conducted marketing surveys as they explored the New World, and examples exist of marketing research conducted during the Renaissance.

Social Media and User-Generated Content

In the past decade, the world of promotion has been turned upside down. Previously, marketers created a message and then one, or a series, of traditional media, TV, print, radio, billboards to deliver that message to a target market. Now, more people than ever participate in blogs, forums, online communities, product/service reviews—think Trip Advisor—and social media sites that created user-generated content (UGC). The opinions expressed in the venues are unsolicited, typically honest, candid, and passionate and can be extremely thoughtful. Social media such as Twitter, Facebook, and LinkedIn generate millions of comments a day about products and services. Marketing research has found that 42 percent of Twitter users learn about products and services via Twitter. More importantly, 41 percent provide opinions about products and services.⁷

Marketing researchers are tapping into these huge streams of data to determine what people think about their products and services, as well as those of the competition. Researchers are building profiles of persons online and using this data to target their promotional efforts. Other researchers tap online communities to build new products and services.

Smartphones are causing major changes in the way media are used and buying decisions are made. Add in tablets, traditional computers, and TV, and one finds that the consumer may be looking at four different screens at the same time! Researchers must now measure consumers’ consumption of content and their exposure to advertising across all four screens. ESPN, the sports network, is now gathering data across five platforms: radio, television, computers, smartphones, and tablets. To learn more about viewers and their feelings, ESPN introduced LiveConnect, a product for advertisers that researches the emotional state of fans to determine which advertising will resonate best in the live sports environment. ESPN is working with its advertisers to create a variety of brand messages and then deliver ads based upon the outcomes of live games and how fans may feel. ESPN fans watching an event out-of-home tend to be younger, more female, multicultural, and more attentive.⁸

Proactive Role of Marketing Research

Understanding the nature of the marketing system is a necessity for a successful marketing orientation. By having a thorough knowledge of factors that have an impact on the target market and the marketing mix, management can be proactive rather than reactive. Proactive management alters the marketing mix to fit newly emerging patterns in economic, social, technological, and competitive environments, whereas reactive management waits for change to have a major impact on the firm before deciding to take action. It is the difference between viewing the turbulent marketing environment as a threat (a reactive stance) and seeing it as an opportunity (a proactive stance). America’s traditional auto manufacturers, such as Ford and General Motors, are just now waking up to the importance of self-driving vehicles. As of late 2016, there were over 30 corporations working on self-driving, or autonomous, cars, and trucks.⁹ Their goal is to bring these technologies to the market faster than the competition.

A proactive manager not only examines emerging markets but also seeks, through strategic planning, to develop a long-run marketing strategy for the firm. A marketing strategy guides the long-term use of the firm’s resources based on the firm’s existing and projected internal capabilities and on projected changes in the external environment. A good strategic plan is based on good marketing research. It helps the firm meet long-term profit and market share goals.

Applied Research versus Basic Research

Virtually all marketing research is conducted to better understand the market, to find out why a strategy failed, or to reduce uncertainty in management decision making. All research conducted for these purposes is called applied research. For example, should the price of DiGiorno frozen pizza be raised 40 cents? What name should Toyota select for a new sedan? Which commercial has a higher level of recall: A or B? By contrast, basic, or pure, research attempts to expand the frontiers of knowledge; it is not aimed at a specific pragmatic problem. Basic research is conducted to validate an existing theory or learn more about a concept or phenomenon. For example, basic marketing research might test a hypothesis about high-involvement decision making or consumer information processing. In the long run, basic research helps us understand more about the world in which we live. Managers usually cannot implement the findings of basic research in the short run. Most basic marketing research is now conducted in universities; the findings are reported in publications such as The Journal of Marketing Research and The Journal of Marketing. In contrast, most research undertaken by businesses is applied research because it must be cost-effective and of demonstrable value to the decision maker.

Although basic research is still important at some firms, particularly high tech, the notion of time-to-market has changed. That is, the basic research can be fairly long term but must have a focus on ultimately solving real-world problems. Companies conducting basic research include Genentech, Cisco Systems, and Google.

Decision to Conduct Marketing Research

A manager who is faced with several alternative solutions to a particular problem should not instinctively call for applied marketing research. In fact, the first decision to be made is whether to conduct marketing research at all. In a number of situations, it is best not to conduct research.

• Resources are lacking.  There are two situations in which a lack of resources should preclude marketing research. First, an organization may lack the funds to do the research properly. If a project calls for a sample of 800 respondents but the budget allows for only 50 interviews, the quality of the information would be highly suspect. Second, funds may be available to do the research properly but insufficient to implement any decisions resulting from the research. Small organizations in particular sometimes lack the resources to create an effective marketing mix. In one case, for example, the director of a performing arts guild was in complete agreement with the recommendations that resulted from a marketing research project. However, two years after the project was completed, nothing had been done because the money was not available.
• Research results would not be useful.  Some types of marketing research studies measure lifestyle and personality factors of steady and potential customers. Assume that a study finds that introverted men with a poor self-concept, yet a high need for achievement, are most likely to patronize a discount brokerage service. The management of Charles Schwab’s discount brokerage service might be hard-pressed to use this information.
• The opportunity has passed.  Marketing research should not be undertaken if the opportunity for successful entry into a market has already passed. If the product is in the late maturity or decline stage of the product life cycle (such as cassette recorders or black-and-white television sets), it would be foolish to do research on new product entry. The same may be true for markets rapidly approaching saturation, such as super-premium ice cream (Häagen-Dazs, Ben & Jerry’s). For products already in the market, however, research is needed to modify the products as consumer tastes, competition, and other factors change.
• The decision already has been made.  In the real world of management decision making and company politics, marketing research has sometimes been used improperly. Several years ago, a large marketing research study was conducted for a bank with over $800 million in deposits. The purpose of the research project was to guide top management in mapping a strategic direction for the bank during the next five years. After reading the research report, the president said, “I fully agree with your recommendations because that was what I was going to do anyway! I’m going to use your study tomorrow when I present my strategic plan to the board of directors.” The researcher then asked, “What if my recommendations had been counter to your decision?” The bank president laughed and said, “They would have never known that I had conducted a marketing research study!” Not only was the project a waste of money, but it also raised a number of ethical questions in the researcher’s mind.
• Managers cannot agree on what they need to know to make a decision.  Although it may seem obvious that research should not be undertaken until objectives are specified, it sometimes happens. Preliminary or exploratory studies are commonly done to better understand the nature of the problem, but a large, major research project should not be. It is faulty logic to say “Well, let’s just go ahead and do the study and then we will better understand the problem and know what steps to take.” The wrong phenomena might be studied, or key elements needed for management decision making may not be included.
• Decision-making information already exists.  Some companies have been conducting research in certain markets for many years. They understand the characteristics of their target customers and what they like and dislike about existing products. Under these circumstances, further research would be redundant and a waste of money. Procter & Gamble, for example, has extensive knowledge of the coffee market. After it conducted initial taste tests, P&G went into national distribution with Folgers Instant Coffee without further research. The Sara Lee Corporation did the same thing with its frozen croissants, as did Quaker Oats with Chewy Granola Bars. This tactic, however, does not always work. P&G thought it understood the pain reliever market thoroughly, so it bypassed marketing research for Encaprin, encapsulated aspirin. The product failed because it lacked a distinct competitive advantage over existing products and was withdrawn from the market.
• The costs of conducting research outweigh the benefits.  Rarely does a manager have such tremendous confidence in her or his judgment that additional information relative to a pending decision would not be accepted if it were available and free. However, the manager might have sufficient confidence to be unwilling to pay very much for it or wait long to receive it. Willingness to acquire additional decision-making information depends on a manager’s perception of its quality, price, and timing. The manager would be willing to pay more for perfect information (that is, data that leave no doubt as to which alternative to follow) than for information that leaves uncertainty as to what to do. Therefore, research should be undertaken only when the expected value of the information is greater than the cost of obtaining it.

Two important determinants of potential benefits are profit margins and market size. Generally speaking, new products with large profit margins are going to have greater potential benefit than products with smaller profit margins, assuming that both items have the same sales potential. Also, new product opportunities in large markets are going to offer greater potential benefits than those in smaller markets if competitive intensity is the same in both markets (see Exhibit 1.1).

Inception: Pre-1900

The first recorded marketing research survey was taken in July 1824 by the Harrisburg Pennsylvanian. It was an election poll in which Andrew Jackson received 335 votes; John Quincy Adams, 169; Henry Clay, 29; and William H. Crawford, 9. Later the same year, another newspaper, the Raleigh Star, canvassed political meetings held in North Carolina, “at which the sense of the people was taken.” Perhaps the first marketing researcher was John Jacob Astor, who in the 1790s employed an artist to sketch the hats worn by fashionable New York women so that he could keep abreast of fashion trends.¹⁰

The first documented use of research to make informed marketing decisions was carried out by the advertising agency N. W. Ayer in 1879. That systematic effort was a simple survey of state and local officials to determine expected levels of grain production. The purpose of the research was to develop the scheduling of advertising for a producer of farm equipment. The second documented instance of marketing research appears to have been at E. I. duPont de Nemours & Company toward the end of the nineteenth century. It involved the systematic compilation of salespersons’ reports on a variety of customer characteristics. The response to this second research effort was a harbinger of things to come. The salespersons who were responsible for obtaining and reporting the data were outraged because they didn’t like the extra paperwork.

Academic researchers entered into marketing research about 1895, when Harlow Gale, a professor of psychology at the University of Minnesota, introduced the use of mail surveys to study advertising. He mailed 200 questionnaires and received 20 completed questionnaires, a 10 percent response rate. Gale’s work was quickly followed by the pioneering work of Walter Dill Scott at Northwestern University. Scott introduced the use of experimentation and psychological measurement to the fledgling practice of advertising.

Early Growth: 1900–1920

It was not until after the turn of the century that consumer demand surged; the growth of mass production meant larger and more distant markets. No longer was America characterized by cottage industries where the craftsman–seller was in daily contact with the marketplace. The need arose to understand consumers’ buying habits and attitudes toward manufacturers’ wares. In response to this need, the first formal marketing research department was established by the Curtis Publishing Company in 1911. The research focused primarily on the automobile industry, as manufacturers had decided that everyone who had the money and inclination to buy a car had done so. The manufacturers were seeking a new group of consumers to which to target their promotions. A few years later, Daniel Starch pioneered recognition measures of advertising response, and E. K. Strong introduced recall measures and scaling to marketing research.

Adolescent Years: 1920–1950

Percival White developed the first application of scientific research to commercial problems. White’s words express his realization of the need for systematic and continual marketing research:

Perhaps the greatest advantage of the company’s having its own market analysis department is that the work then becomes a continuous process, or at least a process which is carried forward at periodic intervals, so that altered conditions in the market and in the industry at large are always kept in view. The necessity for regarding markets as constantly changing and not as fixed phenomena should not be lost sight of.¹¹

White’s book bore scant resemblance to this text. For example, the book avoided the use of statistics and mathematics, only briefly mentioning the U.S. Census.

The 1930s saw widespread use of survey research. A. C. Nielsen entered the research business in 1922. He expanded on White’s earlier work by developing the “share of market” concept and many other services that became the foundation for one of America’s largest marketing research organizations. It was not until the late 1930s that formal courses in marketing research became common on college campuses; a substantial body of knowledge developed within both the practice and academic communities. Two events—the spread of broadcast media and World War II—helped the fledgling discipline coalesce into a well-defined profession. Social scientists found that broadcast media created interesting new phenomena and increased the variability of human behavior.

By the end of the 1930s, simple examinations of respondents’ replies were becoming categorized and compared across groups classified by differences in income, gender, or family status. Simple correlation analysis came into use but was not widespread; those who would use it had to be able to go directly to the statistical sources for such techniques, using texts by some of the pioneers in the field at this time, including G. Udney Yule, Mordecai Ezekiel, and Horace Sechrist.

The requirements of World War II pressed social scientists into service on a number of fronts. Tools and methods that had been novelties before the war were adopted and adapted to study the consumer behavior of soldiers and of their families on the home front. Among those tools were experimental design, opinion polling, human factors research, and operations research techniques.

In the 1940s, focus groups developed under the leadership of Robert Merton. During the late 1940s, the importance of random selection in sampling became widely recognized, and major advances were made in sampling techniques and polling procedures. A small number of psychologists who had been assigned to work in the Army Quartermaster Corps found their way into industry, where they introduced techniques for consumer tests of products.¹²

Mature Years: 1950–2000

The change from a seller’s market to a buyer’s market (resulting from post–World War II pent-up demand) necessitated better marketing intelligence. No longer could producers sell all of anything they made. The rising costs of production “tooling up,” advertising, inventories, and other factors made the price of failure much higher than it had been in the past. Thus, research became much more important. Now, marketing research first determines what the market wants and then goods are crafted to meet those needs.

The mid-1950s brought the concept of market segmentation, based largely on easily identifiable demographic characteristics of customers. The same period gave rise to motivation research, with its emphasis on why consumers behave as they do. The underlying concepts of segmentation and motivation analysis, combined with the power of survey techniques, led to innovations such as psychographics and benefit segmentation. In the 1960s, mathematical models were developed for description and prediction—stochastic models, Markovian models, and linear learning models. Even more significant was the development of the computer during the early 1960s, greatly enhancing the researcher’s ability to quickly analyze, store, and retrieve large amounts of data.

The Connected World: 2000–2010

The Internet brought profound changes to marketing research. Almost all marketing research firms conduct some or most of their research online. More and more firms are focusing on surveys via mobile devices. By 2018, 237 million Americans will own a smartphone.¹³ Today, over 90 percent of the United States has access to the Internet.¹⁴

The Internet has produced many benefits for marketing researchers:

• Provides more rapid access to business intelligence, which allows for better and faster decision making.
• Improves a firm’s ability to respond quickly to customer needs and market shifts.
• Facilitates conducting follow-up studies and longitudinal research.
• Slashes labor- and time-intensive research activities (and associated costs), including mailing, telephone solicitation, data entry, data tabulation, and reporting.

Conducting surveys and analyzing mountains of user data are not the sum total of the Internet revolution in marketing research. The Internet has also greatly enhanced management of the research process and dissemination of information. Specifically, the Internet has greatly affected several key areas:

• Libraries and various printed materials, which may be virtually replaced as sources of information.  On its website, the Bureau of Census (http://www.census.gov) now uses the Internet as the major means of distributing census data. The same is true for a number of other government agencies. Information from countless databases (both governmental and nongovernmental) can be called up almost instantaneously on the user’s desktop, notebook, smartphone, Kindle, iPad, or other E-reader.

  

• The distribution of requests for proposals (RFPs) and the proposals themselves.  Companies can now quickly and efficiently send RFPs to a select e-mail list of research suppliers. In turn, the suppliers can develop proposals and e-mail them back to clients. A process that used to take days now occurs in a matter of hours.
• Collaboration between the client and the research supplier in the management of a research project.  Both the researcher and the client might look at a proposal, RFP, report, or some type of statistical analysis at the same time on their computer screens while discussing it over the telephone. This is very effective and efficient as changes in sample size, quotas, and other aspects of the research plan can be discussed and changes made immediately.
• Data management and online analysis.  Clients can access their survey via the research supplier’s secure website and monitor the data gathering in real time. The client can use sophisticated tools to actually carry out data analysis as the survey develops. This real-time analysis may result in changes in the questionnaire, sample size, or types of respondents interviewed. The research supplier and the client become partners in “just-in-time” marketing research.
• Publishing and distribution of reports.  Reports can be published directly to the Web from programs such as PowerPoint and all the latest versions of leading word processing, spreadsheet, and presentation software packages. This means that results are available to appropriate managers worldwide on an almost instantaneous basis. Reports can be searched for content of specific interest, with the same Web browser used to view the report.
• Oral presentations of marketing research surveys,  which now can be viewed by widely scattered audiences. Managers throughout the world can see and hear the actual client presentation on password-protected websites. This saves firms both time and money as managers no longer need to travel to a central meeting site.

Big Data and Data Analytics: 2010–Present

The hottest buzzword in marketing research is Big Data. Interestingly enough, most authors never bother to define the term, so it is unclear whether people are always speaking about the same thing. For our purposes, we will define Big Data as the accumulation and analysis of massive quantities of information especially related to human behavior and interactions. Every day, three times per second, we produce the equivalent amount of data that the Library of Congress has in its entire print collection.

Up until recently, managers were limited to analyzing structure data. Structured data consists of fixed answers and numbers that can be arranged in rows and columns. These data are easily stored, categorized, queried, analyzed, and reported. A few examples of structured data formatting are: (1) Are you (A) male, (B) female?; (2) Did you find the restaurant (A) excellent, (B) good, (C) fair, or (D) poor? The data in question 2 can be crossed with the gender data to ascertain how many men and how many women found the restaurant to be “excellent.” The analysis is simple, direct, and straightforward.

The breakthrough came in 2009 when new algorithms were created to analyze unstructured and free-form data. Now, data scientists can analyze YouTube videos, social media posts, Web-click behavior, GPS tracking data, satellite imagery, video streams, public surveillance videos, in-store tracking cameras, and more. Data Analytics, also called marketing analytics and predictive analytics, uses advanced quantitative techniques as well as machine learning and artificial intelligence to analyze Big Data to understand situations and behavior and to make predictions about the future.

So how do marketers use Big Data to improve their profitability? Here is one example.

Chico’s FAS Inc., Fort Myers, Florida-based specialty retailer of private branded women’s apparel, listens to what consumers say about its brand on Facebook, Twitter and YouTube, and in discussion forums and blogs. With social media analytic tools, Chico’s can find key influencers for the brand and determine how their brand-related online conversations affect business results. Such findings ultimately guide brand and communication strategies, and customer-focused efforts. Chico’s works in real time to identify tweets related to its brands, and categorizes them based on their sentiment and the author’s degree of influence. The company can then respond to the important comments.¹⁵

McKinsey & Company, an international consulting firm, says that companies who use Big Data and the proper analytics can deliver productivity and profit gains that are 5 to 6 percent higher than the competition.¹⁶ The tremendous value of Big Data means that Big Data technology and services market will have revenues reaching $187 billion by 2019.¹⁷

The mathematics used in analyzing Big Data goes far beyond the scope of this text. We will, however, take a more detailed look at the nature and benefits of Big Data from a managers’ or users’ perspective in Chapter 4.

So, is marketing research a career for you? Here are eight reasons why the answer should be “yes”, detailed in our Practicing Marketing Research box.