In-house vs external market research

Is a budget-constrained organization better off outsourcing market research to experienced

service suppliers, or should it build that expertise in-house, and perhaps rely on suppliers mostly
for fieldwork or data tabulation? Some large MNCs (Multi-National Companies) do nearly all
their research in-house, including project design and focus groups. Others choose to outsource or
do both on a case-to-case basis.

For organizations on limited budgets it is financially appealing to do in-house marketing

research. It is important, however, to still maintain best practices otherwise it becomes a waste of
time and money. It can even damage the organization by providing misleading or biased results
leading to the creation of ineffectual business strategies or ineffective marcom (Marketing
Communication) plans.

The key elements necessary for successful internally managed research projects are:
(1) long-term vision; (2) clearly defined goals; (3) earmarked budget; (4) project management
skills; and (5) a means of measuring success.

Advantages of outsourcing research

 Expertise and experience: Market research companies are specialists in gathering,
analysing and reporting on data. They will have statisticians and trained interviewers at their
disposal. They will typically have specialized in software with data processing capabilities
and access to facilities, such as focus group rooms and senior management contacts.

 Confidentiality and security: Reputable research companies must strictly adhere to

respondent confidentiality: keep personal data of the interviewee’s private, and destroy all
records as appropriate after the study is completed. Some behaviours related to IP can be
considered anti-social and respondents may not be willing to fully divulge personal
information to a government agency.

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 Unbiased viewpoint: While less familiar with IP issues, the independence of market
research means that they are usually free of any organizational bias (as to how the findings
should appear or how they would like the findings to appear).

 More efficient: Market research companies know where to find information and may have
access to information which is hard to find and costly to access on a one-off basis.

Advantages of conducting in-house research

 Lower costs: However, internal costs would need to be properly accounted for to make this
assessment.

 Stronger domain knowledge: An outsourced supplier will not have the depth of knowledge
that is available in-house regarding the key issues.

 Better control: Internal daily updates are easier to access if required and managers can
remain ‘hands on’ throughout the project.

Marketing research process

1) Define problem and research objectives
2) Develop the research plan for collecting information
Process model
3) Implement the research plan, collect and analyze data
4) Interpret and report findings
Defining the problem
– Often the hardest step in the process
– Manager understands decision to be made best, researcher understands
marketing research process and how information is obtained
– Wrong problem => wrong solution

Set research objectives

Defining the problem – Three basic types
and – Exploratory research
research objectives – Gather preliminary information which helps define the problem better and
suggests hypotheses
– Descriptive research
– Describe how things are, e.g. market potential, attitudes of consumers who
buy the product etc. (“passive”)
– Causal research
– Test hypotheses about cause-and-effect relationships
– E.g. price reduction of 10% => will overall profit increase or decrease?

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 Both problem and objectives should be formally documented, as they are
critical in guiding the rest of the process.

Developing the
Determining specific information needs
research
– Objectives must be translated to concrete information needs
plan
Gathering secondary information needs
– Secondary information = information that has already been collected but
usually for some other purpose

Advantages
– Cheaper and easier to get (than primary information)
– Can provide data that a company cannot collect on its own (i.e.
information not directly available or too expensive to collect)

Disadvantages
– Required information may not exist in secondary information sources
– Does not necessarily apply completely to the problem at hand

Researcher must evaluate secondary data to ensure that it is:

– Relevant (fits research needs)
– Accurate (reliably collected and reported)
– Current (up to date for research purposes)
– Impartial (objectively collected and reported)

Sources
– Commercial data sources e.g., newspapers, magazines, journals, company
catalogues and brochures
– Online databases and Internet data sources

Planning primary data collection

Research approaches
– Observation: observe relevant people, actions, situations
– Survey: asking individuals directly, best suited for descriptive research.
Most widely used, but problems are: unwillingness to respond, answering
when don't know answer, giving pleasing answers, ...
– Experiment: best suited for gathering causal information, e.g. McDonalds
might test effect in a few test cities
– Contact methods (mail, telephone, personal, online)
– Mail questionnaire – large amounts of information, low cost per
respondent
– Telephone interviewing – quick, greater flexibility, cost per respondent
higher than questionnaire, interviewer bias
– Personal interviewing – individual or group interviewing (6-10 people),
focus group interviewing popular (involves moderator)
– Online marketing research – Internet surveys and focus groups
– Sampling plan (sampling unit, sample size, sampling procedure)
– Sample = a segment of the population selected for marketing research to
represent the population as a whole
– Sampling unit – who is to be surveyed? Not always obvious, e.g. car
purchases -> interview husband, wife, other family members, dealer, or all?

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 – Sample size – how many (people)
– Trade-off between cost and reliability
– Well selected sample of less than 1% may be sufficient
– Sampling procedure – how to choose samples from population
– Probability sample: Each population member has a known probability for
being selected => can be used for statistical inference
– Simple random sample – same prob. for each
– Stratified random sample – mutually exclusive groups, samples from
each group
– Cluster (area) sample – mutually exclusive groups, some groups are
selected as sample (e.g. city blocks)
– Non-probability sample: Not useful for statistical inference
– Convenience sample – select easiest members
– Judgment sample – prescribed number of people in certain categories

Research instruments (questionnaire, mechanical instruments)

– Questionnaire
– Question forms – closed-end (yes/no, 1...5, etc), open-end (unstructured,
word completion, fill in, story/picture completion, thematic apperception test
(TAT))
– Wording and ordering – difficult questions last
– Mechanical instruments – people meters, supermarket scanners,

Presenting the research plan

– Written research plan or proposal ensures completeness of research scope,
and also ensures stakeholders agree on what and how to research

Data collection by own people or by outsourcing

Outsourcing has risk of negligence in the data collection process (e.g.
Implementing the
interviewer shortcuts), but is quicker and costs less
research plan
Data collection is expensive and most subject to error
Data needs to be entered into a database for further analysis
Find meaningful results and report to management, avoid fancy statistical
techniques. Interpretation should not be done by researcher alone
Interpreting and
– Manager should check research was carried out properly
reporting
– Manager may have additional questions after seeing initial results
the findings
– Manager ultimately decides on how to act on data
– Raw data should be made available to manager and other stakeholders, so
further analysis can be easily done

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 Developing a property marketing plan, marketing & promotion
A Marketing Plan (also known as an Action Plan or Marketing Strategy) is a written plan that
specifies the marketing goals and objectives to be achieved over a specified period of time. It
also includes the strategies to be used to achieve these marketing and promotional goals.

Advertising, sales promotions, and public Advertising

Advertising
Overview – Any paid form of non-personal presentation and promotion of ideas, goods, or
services by an identified sponsor
Setting objectives
– Communication objectives
– Sales objectives

Budget decisions
– Affordable approach
– % of sales
– Competitive parity
– Objective and task

Message
Model – Message decisions
– Message strategy
– Message execution
– Media decisions
– Reach, frequency, impact
– Major media types
– Specific media vehicles
– Media timing

Campaign evaluation
– Communication impact
– Sales impact
Advertising objective
– A specific communication task to be accomplished with a specific target
audience during a specific period of time
Inform
– Build primary demand, e.g. CD producers created awareness
– Useful in early product lifecycle
Setting objectives
Persuade
– To build selective demand – why our brand is best
– Comparative advertising
– Compare own brand directly or indirectly to one or more other brands
Remind
– Remind that product exists; important for mature products

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 Depends on
– Product lifecycle stage (early => typically more)
– Market share (high share => typically more)
– Level of differentiation (low differentiation => more advertising)
Consumer-packaged goods => companies tend to overspend as insurance of
underspending
Setting budget
Statistical models to determine optimal advertising budget
– E.g. Coca Cola and Kraft
– Idea is to correlate promotional spending and brand sales, then determine
optimal
amount of promotion
– Inexact science due to large number of factors
Two important parts
– Creating message
– Selecting media
The two parts increasingly affect each other – and should be planned jointly
– Traditionally “creatives” handled message, while “media department” selected
media => unoptimal results

Creating message
– Problems of clutter, ad avoidance => have to entertain, not just sell!

Message strategy
– = What general message is communicated
– Identify customer benefits (potential appeals)
– Develop creative concept or “big idea” - which brings message strategy to
life in a distinctive and memorable way
– Select specific appeals, which should fulfill the following
– Be meaningful (point out benefits)
– Be believable (consumer can believe the message)
– Be distinctive (how the product is better than other brands)
Developing strategy
Message execution
– Turn the big idea into an actual ad
– Select best style, tone, words, format
– Execution styles
– Slice of life, lifestyle, fantasy, mood/image, musical, personality symbol,
technical expertise, scientific evidence, testimonial evidence / endorsement
– Tone
– Positive – something good about the brand
– Humor
– Words
– Memorable and attention getting – “well engineered” => change to “ultimate
driving machine”
– Format
– Illustration
– Headline
– Copy

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 Selecting media
– Decide on reach, frequency, and impact
– Reach = % of people in target market exposed to the campaign in time period
– Frequency = how may times average person exposed to message
– Media impact = qualitative value of a message exposure
– E.g. scientific claim in Newsweek more believable than in National Enquirer
– Choosing among major media types
– Newspapers, television, direct mail, radio, magazines, outdoor, Internet
– Media habits of target consumers
– Nature of product (fashion => color mags, cars => television)
– Cost
– Selecting specific media vehicles
– E.g. if TV selected as media, select ER or Frazier
– Compute cost per / 1000
– Must also consider costs of producing an ad (tv => costly)
– Media impact factors
– Audience quality (how closely matches target market)
– Audience attention (how much attention to ads, depends on e.g. magazine)
– Editorial quality (high credibility or trash)
– Timing
– Seasonal patterns or same pattern throughout the year
– Continuous or pulsing
– Pulsing may achieve same awareness with less ads, but may also sacrifice
depth

Measuring communication effects (copy testing)

– Can be done before or after ad is placed
– Show the ad, measure changes in attitude, recall, awareness, knowledge,
preference
Evaluating – Sales effect more difficult to measure
– May try to compare past sales and past advertisement expenditures
– May try experiments (e.g. vary ad spending in different areas, compare results)

Organizing
– Small company => sales department might handle
– Large company => advertising department
Advertising agencies typically used
– History – mid-to-late 1800s => ad agencies sold space, then started to actually
create ads
– May perform ad creation better, have outside perspective
– Organized into large groups and megagroups
Advertisement – Agency departments
agencies – Creative – develop and produce ads
– Media – select media, place
– Research – study audience characteristics and wants
– Business – customer relations; account managers / executives
– Compensation
– Fee
– Commission – e.g. 15% rebate of media costs (e.g. media cost $60000 to
company X if contacts media directly, $51000 to agency => $9000 rebate)
– Unhappiness about this organization – compensation not proportional to

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 work (large media costs => large payments) => more innovation on fees
– One trend is diversification into other marketing tasks

Basic issue – how much to adapt to various countries?

– Standardization benefits
– Lower costs, greater global advertising coordination
– Consistent worldwide image
International – Standardization drawbacks
marketing – Ignore even large differences in cultures, demographics, economics
decisions – Typical response - “think globally, act locally”
– Global advertising strategies
– Local advertising programs
– E.g. Coca-Cola pool of commercials, local selection
Advertisement regulation differs
– Especially comparative ads

Sales promotion
= Short-term incentives to encourage the purchase or sale of a product or service
– Offers a reason to buy now
Targeting
– Final buyers (consumer promotions)
– Business customers (business promotions)
Overview
– Retailers and wholesalers (trade promotions)
– Members of sales force (sales force promotions)
Process
– Set objectives
– Select best tools to achieve objectives
Factors contributing to growth
– Product manager pressure to increase sales (local optimization)
– More external competition, less differentiation among brands
Rapid growth of
SP
– Advertising efficiency has declined due to rising costs, media clutter, legal issues
– Consumers have become more deal oriented, same goes for e.g. retailers
=> Promotion clutter
– Consumers increasingly “tuning out” promotions, making them less effective
Goals vary greatly
– Increase short term sales or build long-term market share
– Getting retailers to carry new items and more inventory
– Getting retailers to advertise more and give more shelf space, buy ahead
Objectives
– More sales force support, more signed accounts
Goal should be consumer relationship building
– Should help reinforce brand position (instead of “quick fix”)
– E.g. customer clubs (build relationships)
Consumer promotion tools
– Sample = A small amount of a product offered to consumers for trial
– Coupon = Certificate that gives buyers a saving when they purchase a specified
Tools
product
– Cash refund offer (rebate) = Offer to refund part of the purchase price of a product
to consumers who send a “proof of purchase” to the manufacturer

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 – Price pack (cents-off deal) = Reduced price that is marked by the producer directly
on the label or package
– Premium = Good offered either free or at low cost as an incentive to buy a product
– Advertising specialty = Useful article imprinted with an advertiser's name, given as
a gift to consumer (pens, calendars, ...)
– Patronage reward = Cash or other award for the regular use of a certain company's
products or services
– Point-of-purchase (POP) promotion = Display and demonstration that takes place
at the point of purchase or sale
– Contents, sweepstakes, games = Promotional events that give consumers the
chance to win something (cash, trips, goods, etc) by luck or through extra effort

Trade promotion tools

– Discount = A straight reduction in price on purchases during a stated period of time
– Allowance = Promotional money paid by manufacturers to retailers in return for an
agreement to feature the manufacturer's product in some way
– Display allowance
– Advertising allowance
– Free goods, push money, specialty advertising items

Business promotion tools (promoting to industrial customers)

– Many of the same tools as for individuals
– Conventions and trade shows
– Finding leads, meeting customers
– Introducing products etc.
– Sales contests
– Contest for salespeople or dealers – to improve performance
– Trips, cash prizes, other gifts, performance points exchangeable for something
Decide
– Size of incentive (minimum size for anything to happen exists)
Developing SP – Conditions for participation
program – How to promote and distribute the promotion program itself (package, store, mail..)
– Length of the promotion
– Evaluation – most common method is to compare sales before, during, after