Market Research – a Key Component of Business Strategy
This article is part of a series on what causes a firm’s value to increase
After a particularly bad quarter of customer complaints, revenue, and profit below budget and forecast, have you ever said to yourself “If it were not for these d…n customers, this would be a great business”?. This facetious statement, which I have actually heard before, shines the light on our vexing requirement to know our customers much better than many of us do.
Market research is the field to better understand your current and possible new customers’ needs and wants for your current products, services and their levels of satisfaction with your current offerings. Understanding customers for innovative and radically new products and services comes from the new field of innovation, and market research does not have a good track record here. There are two major kinds of market research – primary and secondary. This article will discuss primary only. Secondary is studying already published data and primary market research yields new data via some form of survey. We will focus on the critical success factors for great market research that will yield “the truth”.
Here are, from my experience, the vital six keys needed to yield “the truth” on all fronts and thus prevent fatal flaws:
- Who is the customer? Sound ludicrous? Think of a snack cake manufacturer. Is the customer the soccer mom or dad who buys for their children, the children themselves, the grocery store procurement manager or all three? For a newspaper, is the customer the reader or firms buying advertising or both? Each has different needs and wants and if a firm gets this wrong, it is doomed from the start with respect to useful data.
- What is the market? If you are a mom and pop lunch diner, your market is probably a number of miles radius around your business. If you are in the oil and gas business in Shreveport, your market is not just Shreveport, but probably the world, since the oil and gas business is a global business. Geography is one of many ways to segment a market. Getting this wrong is not as fatal as #1, but close.
- After answering #1 and #2, we need to design the survey approach and format to collect the data from customers. These can be mailings, e-mailings, phone interviews, focus groups, on five point scales or open ended questions, etc. Most firms get an independent market research firm to actually do the research to provide a channel for customers to feel they can be honest. But what is key for all of these formats is not providing leading questions to get the answers we want, because most of us have a bias for receiving mostly favorable responses. A leading question could be “Tell us your opinions about the three great things for which our firm is known.” An objective question could be “Tell us your honest opinions about our firm.” Leading questions are a form of dishonesty. Smart survey takers will get cynical about the survey and your firm, if they can find you out from the market research company. A first cousin to leading questions is offering some kind of reward to complete the survey format. This can set up a “halo effect” where the customer reports mostly favorable responses.
- The sample size of the number of respondents to the survey must be representative of who the customer and market are. The error is on a smaller representation than your proper “universe”. Including more than you need is wasting money. I cannot tell you how many faulty conclusions I have witnessed over the years due to too small a sample size, especially when mostly favorable responders are assembled.
- Assuming we have done the first four items well, next we need to discern what the key customer wants and needs are and which products and services the customer would be willing to pay full price for or go out of their way to get. Space precludes a detailed discussion, but this can be done via multiple techniques. This helps us focus on the vital few things customers really want versus a long laundry list of nice to haves for which the customer will not pay full price, if they buy at all. Customers are notorious for saying they will buy something described to them as a prototype then not actually making the purchase.
- An often ignored factor is providing some kind of feedback to your responders after the market research is completed. This would be averaged data that does not divulge identities. Responders like to see the fruits of their efforts and learn from the findings. You can even have a channel for some to comment on the general findings for further insight. This is an effective way to have them participate again in the future.
These six factors give your firm the best chance of:
- Having honest data and findings to make new strategy conclusions
- Being able to hone in on the vital offerings versus the trivial many
- Being seen as legitimate, professional and honest in seeking the truth and only the truth
Next Up: Dynamic Capabilities – A New Approach to Strategy – Part 1
Bill Bigler is Director of MBA Programs and associate professor of strategy at LSU Shreveport. He spent twenty five years in the strategy consulting industry before returning to academia full time at LSUS. He is the immediate past president of the board of directors of the Association for Strategic Planning, one of the leading professional associations in the field of strategy. He can be reached at email@example.com