MARKETING MANAGEMENT12th edition

4 Conducting

Marketing Research and Forecasting

Demand

Kotler Keller

4-2

Objectives

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?

4-3

Marketing Intelligence System and Research

• A MARKETING INTELLIGENCE SYSTEMA MARKETING INTELLIGENCE SYSTEM is a set of procedures and sources used by managers to obtain everyday information about developments in the marketing environment.

• INFORMATION (PRIMARY & SECONDARY) SOURCES AND ACTIVITIES:INFORMATION (PRIMARY & SECONDARY) SOURCES AND ACTIVITIES:– In-House Sales Force trained recognize and required to provide critical market data– Distributors, retailers & other intermediaries supporting strategic relationships provide data– Specialists for hire: mystery shoppers provide ongoing feedback on customers & competitors– Competitor product information, trade shows, reports, stockholders meetings, internet, dealers, distributors,

suppliers, freight agents, even employees.– Customer Advisory Panels established to identify evolving customer and market needs – Outside suppliers sell secondary data– syndicated & subscription service firms (i.e. Nielsen, Information Resources,

SAMI/Burke, MRCA, Simmons Market Research Bureau, Arbitron., others in Table 3.2)– Major publications, abstracts and relevant news disseminated by the intelligence staff

• MARKETING RESEARCHMARKETING RESEARCH is the systematic design, collection, analysis and reporting of data and findings relevant to a specific marketing situation facing the company.

• INFORMATION (PRIMARY & SECONDARY) SOURCESINFORMATION (PRIMARY & SECONDARY) SOURCES (Internal & External)– Internal and External Sources Same as above, plus– Research projects contracted at low cost with students, professors and universities, or– Costlier projects through outside marketing research firms- three kinds: 1) Syndicated Service Research 2) Custom

Marketing Research 3) Specialty-Line Marketing Research

4-4

Survey research Behavioral data Experimental research (tests various causes & effects)

Research Instruments Questionnaires Psychological tools Mechanical devices Quantitative measures

Step 1. Define the Problem, the Decision Alternatives, and the Research Objectives Step 2. Develop the Research Plan

Data Sources (Primary and Secondary) Research Approaches

Observational research Focus group research

Sampling Plan Sampling unit Sample size Sampling procedure

Contact Methods

Mail questionnaire (minimum interviewer bias)

Personal interviewing

Arranged interviews

Intercept interviews

Online methods: Click-stream, Cookies, Auto surveys Step 3. Collect the information Step 4. Analyze the Information Step 5. Present the Findings Step 6. Make the Decision

The Marketing Research Process

See Questionnaire “Do’s and Don’ts on p.107 and Table 4, “Types of Questions”

See Table 4.2 on “Probabilityand Non-probability Samples”

See “Pros and Cons of on-lineResearch”, p.113

Scientific Method

Research Creativity

Multiple Methods

Interdependence

Value & Cost of Information

Healthy Skepticism

Ethical Marketing

CHARACTERISTICS OF GOOD MARKETING RESEARCH

4-5

Measuring Marketing Productivity

ExternalExternal• Awareness• Market share• Relative price• Number of complaints• Customer satisfaction• Distribution• Total number of customers• Loyalty

InternalInternal• Awareness of goals• Commitment to goals• Active support• Resource adequacy• Staffing levels• Desire to learn• Willingness to change• Freedom to fail• Autonomy

Sample Marketing MetricsSample Marketing Metrics

• % of new customers to average #

• % of lost customers to average #

• % of win-back customers to

average #

• % of customers in various levels of

satisfaction

• % of customers who would

repurchase

• % of target market members with

brand recall

• % of customers who say brand is

most preferred

Sample Customer-Performance Sample Customer-Performance Scorecard MeasurementsScorecard Measurements

4-6

Tools to Measure Marketing Plan Performance

Sales Sales AnalysisAnalysis

MarketMarketShareShare

AnalysisAnalysis

Expense-Expense-to-Salesto-SalesAnalysisAnalysis

FinancialFinancialAnalysisAnalysis

Sales VarianceSales VarianceSingle Level

Analysis

Micro SalesMicro Sales

VarianceVarianceMulti-level

Analysis

All factors thatContributed toEntire Sales OrgPerformance

All factors thatContributed to Each Level of Sales OrgPerformance: ProductsBy Rep by Territory

Overall Market Share

Percentage ofTotal Market

Served MarketShare

Percentage ofQualified Market*

Relative Market Share

Percentage of NextLargest Competitor

A Company’sPerformance Relative ToCompetition

*Qualified Market = (Corio) Target Market or (Kotler) Buyers Willing and Able to Buy

Total Marketing Expense and

Components asPercentage of Sales

Total Group Sales / Marketing Expense Sales Organization Component Expense Advertising, Promotions and IncentivesMarketing researchProduct MarketingAll Other Components

Identify FactorsThat Affect a

Company’s Rate ofReturn on Net Worth

Cash Accounts Receivable InventoryPlant and Equipment

Profitability Analysis

Critical Elementsof Total Profits

Deeper Analysis to Measure Profits onProducts, Territories,Customers, Segments,Channels, etc.

4-7

Forecasting and Demand Measurement

Why -Conduct ResearchWhy -Conduct Research -Measure Markets?-Measure Markets? To Quantify Opportunities

Why Forecast Demand?Why Forecast Demand? To Determine Impact on Sales From Marketing Initiatives and External Environmental Dynamics To support strategic and tactical changes to marketing mix in order to maximize profits and achieve goals To Provide Critical Information For Resource Planning

Markets to MeasureMarkets to MeasurePotential market (all buyers with professed interest)

Available market (buyers with interest, income & access)

Target market-served (Part of available market pursued)

Penetrated market (Actual buyers of company’s product)

Ninety Types of Demand Measurement (6X5X3)

The Measures of Market DemandThe Measures of Market Demand

Sales Marketing HQTime Level Short Medium/Long Long

Product Level Product All All Line +Space Level Customer Region/USA USA Territory World World* Forecasts conducted by different groups for different tactical and strategic purposes

4-8

Forecasting and demand Measurement

Market DemandMarket Demand (total purchases by a customer group that would be made within a defined geography, time frame, market environment and program influence)

• Market share [percentage of market (demand)]

• Market penetration index (current demand compared to potential Demand)

• Share penetration index (current market share to potential market share)

A Vocabulary for Demand MeasurementA Vocabulary for Demand Measurement

Market ForecastMarket Forecast (expected market demand)(expected market demand)

Market PotentialMarket Potential (the limit approached by (the limit approached by market demand as industry market expenditures market demand as industry market expenditures approach infinity for a given market environmentapproach infinity for a given market environment

Product penetration Product penetration (percentage of a product’s (percentage of a product’s ownership in a populationownership in a population

Company DemandCompany Demand (estimated share of (estimated share of market demand at alternative levels of company market demand at alternative levels of company marketing effort in a given time period)marketing effort in a given time period)

Company Sales ForecastCompany Sales Forecast (expected sales (expected sales based on a chosen marketing plan and assumed based on a chosen marketing plan and assumed marketing environment see 5.4. Not a sales quota.)marketing environment see 5.4. Not a sales quota.)

Company Sales PotentialCompany Sales Potential (the sales limit (the sales limit approached by company demand as company approached by company demand as company marketing effort increases relative to others)marketing effort increases relative to others)

Market Demand FunctionsMarket Demand Functions

Market demand is a function of marketing expenditures in a fixed business environment Changes in industry marketing expenditures create different levels of estimated market demandEstimated market demand tends to increase at a decreasing rate as industry marketing expenditures are increased (company assessments & planning)Changes in the slope of the curve reflect market demand sensitivity, expandability and total market demand potential Companies should compare current levels of demand with market demand potential to change the marketing mix and measure results with each change that is made

4-9

• Estimating Current Demand (PotentialEstimating Current Demand (Potential) – 3 Ways

Total Market PotentialTotal Market Potential: Strategic Market Selection:

• Simple Quantitative: Estimate Potential # of buyers X average purchase qty. X price• Chain Ratio Method: Multiply a base number by several adjusting percentages

Area Market PotentialArea Market Potential: Tactical Territory Selection w/ Resources:

• Market-Buildup Method: estimates made by industry SIC codes – business markets

Forecasting and Demand Measurement

Multiple-Factor Index Method:

estimates made from use of multiple

factors with % weights assigned to a base population – consumer markets

Brand Development IndexBrand Development Index:: Relative opportu-Relative opportu-

nity from company geo/market share comparisonsnity from company geo/market share comparisons

Actual Industry Sales and Market ShareActual Industry Sales and Market Share

SIC

(a)

Annual Sales in Million

of $

(b)

Number of Establishment

(c)

Potential Number

of Lathe Sales

Per $1 Million Customer

Sales

Market Potential

(a x b x c)

25111 6 10 60

5 2 10 100

2521 1 3 5 15

5 1 5 25

30 200

(a)

Percent of

U.S. Brand

(b)

Percent of

U.S. Category BDI

Territory Sales Sales (a b) x 100

Seattle 3.09 2.71 114

Portland 6.74 10.41 65

Boston 3.49 3.85 91

Toledo .97 .81 120

Chicago 1.13 .81 140

Baltimore 3.12 3.00 104

Market-Buildup Method Using SIC Codes

Calculating the Brand Development Index (BDI)

Trade Association Data Secondary Data Research Reports (Nielsen Media Research)

Company’s percent of its sales by city

Market Percent of sales by city

4-10

Forecasting and Demand Measurement

Estimating Future Demand – Forecasting Sales MethodologiesEstimating Future Demand – Forecasting Sales Methodologies

Macro Economic Analysis and Company Projections• GNP and industry-sales projections based on economic indicators• Corporate sales forecast from market share estimate of projected industry sales

Past Sales Analysis• Time Series Analysis (historical performance identified as trends, cycles, seasons or erratic then projected into the future)• Exponential Smoothing (projection based on average of past performance)• Statistical Demand Analysis (projections based on cause-and-effect results from changes in income, price and marketing expenditures)• Econometric Analysis (establish sets of equations to calculate impact of variable parameters)

Survey of Buyers’ Intentions• Purchase Probability Scale: • Survey of buyer intentions relative to variations in economic conditions & product offerings

Sales Force Forecasts: Based on true assessment of likelihood rather than from influence of quota objectives Expert Opinions

• Channels, Business Partners, Consultants & Trade Associations• Individual or Group Discussions & Pooling Methods

Market – Test Method: Pilot implementation in representative environment

Parity check and crossreference results fromdifferent methods

DIRECT

MARKET

CONTACT

NO

MARKET

CONTACT