4.2 Marketing Planning Part 2 Roberts-IBBM

Market Research The process of collecting, recording, and analyzing data about customers, competitors, and the market

Why conduct market research? 1. Reduce the risks of launching a new product 2. Predict future demand changes 3. Explain patterns in sales of existing products and market trends 4. To identify the favored designs, flavors, styles, promotions, and packaging

Marketing Research Secondary Research A collection of data from second-hand sources. Often called “desk” research. Second-hand research should be conducted first. It is less expensive and reveals a lot of information. Primary Research A collection of first-hand data that is directly related to the researcher’s needs. Primary Research can be expensive yet specific to your needs.

Where do you get Secondary Data Government publications Local libraries and local government offices Trade organizations Market intelligence reports Newspaper reports and specialist publications Internal company records Internet

Advantages / Disadvantages of Secondary Data AdvantagesDisadvantages Typically inexpensive May be out dated Can assist with planning primary research Originally collected for another purpose so it may not entirely suitable for your purposes Can be obtained quickly Data collection methods and accuracy may be unknown Comparison of data from different sources May not be available

Primary Research Quantitative Research Research that leads to numerical results that can be analyzed and presented. The average person dines out 3X per week. Qualitative Research Research into the motivations behind buying behaviors and opinions. All fast food restaurants are cheap.

Where do you get Primary Data Qualitative Research includes: Focus Groups * Small groups of people expressing their attitudes towards product, services, advertisements, or packaging.

Where do you get Primary Data Test Marketing Marketing a new product in a geographical region or city before a full-scale launch. Consumer Surveys Directly asking consumers about their opinions and preferences.

4 Issues with Surveys 1. Who to ask? You cannot ask everyone, so a SAMPLE is taken. 2. What to ask? Construct an unbiased questionnaire. 3. How to ask? Telephone, self-complete, interviews 4. How accurate is it? Assess the accuracy and validity research

Sampling Sample A group of people taking part in market research selected to represent the target market. Sampling Error Error in research caused by using a sample for data collection instead of the whole target population

Who to ASK? Random Sampling Each member of the target population has an equal chance to be selected. You should: Have a list of all the people in the target population Sequential numbers are assigned A list of random numbers are generated

Who to ASK? Stratified Sampling The target population contains many layers (men, women, children, teenagers, elderly) The sample should include representation from all the layers in the target population.

Who to ASK? Cluster Sampling If the target population is geographically diverse, clusters of samples may be taken from a few different locations instead of every location.

Who to ASK? Quota Sampling The population is segmented into mutually exclusive groups (example: women, men) If the survey was to be administered to 100 people, then 50 men and 50 women would be interviewed.

Who to ASK? Snowball Sampling The first respondent refers a friend, who refers a friend, who refers a friend. This type is likely to be biased because friends tend to have similar lifestyles and opinions.

Marketing Concepts Market: The group of potential customers who have similar needs/wants, sufficient buying power, and the willingness to give up a portion of that buying power in order to buy your product/service. The GROUP

Marketing Concepts Market Segmentation: Dividing the total market into smaller, well-defined groups with similar wants/ needs and similar key characteristics. How to divide the GROUP

Marketing Concepts Market Segment One sub-group of the many segments that belong to the whole group. Specific products and services can be targeted to a specific segment.

Marketing Concepts Target Market: The group or groups of potential customers identified as most likely to patronize the business and buy its products. Section of Group Focused on For Sales

Consumer Profile A quantified picture of the consumers of your products Proportions of age Income levels Location Gender Social class

How are markets segmented? Geographic Tastes may very by geographic location Demographic Most common way to segment Age, gender, family size, ethnic background, income, weight, job classification Psychographic Differences in lifestyle, hobbies, personalities, values Sports fans, athletes, fisherman, church-goers

Positioning Your Product Determining who should want to purchase your product…..placing your product in that market segment….using your marketing mix to correctly market to that target market.

Unique Selling Point (USP) The factor that makes your company’s product unique…designed to motivate customers to buy. Product: Dyson’ vacuum cleaner with cyclone technology Price: Walmart – always low prices Place: Dell Computers – first computer manufacturer to utilize Internet sales Promotion: FedEx….when it absolutely, positively has to be there overnight.

Sales Forecasting Sales Forecasting is predicting future sales levels and sales trends for your product. Benefits to sales forecasting include: 1. The production department would know how many to produce, how much raw materials to order, and how much final product to inventory. 2. The marketing department would be aware of how many products to distribute to the market place and any needed changes to the marketing mix to maximize sales. 3. Human Resources could construct an accurate workforce plan creating appropriate staffing levels. 4. Finance could plan cash flows with accuracy. HL

Sales Forecasting The following are considerations when creating sales forecasts: Trends: movement of data over time Seasonal Variations: regular and repeated variations that occur in sales data within a 12 month period or less Cyclical Variations: variations in sales occurring over periods of time greater than a year – they are related to the business cycle Random Variations: may occur at any time and will cause unpredictable sales figures….poor weather, negative publicity HL

Quantitative Sales Forecasting Methods Time-Series Analysis Using past sales data to forecast future sales. Past data presented in data order is called a “TIME-SERIES” Two methods are: Extrapolation Moving Averages HL

Extrapolation Use past sales data to view trends and make predictions about future sales. Assumes that sales patterns are stable and will remain stable. It is ineffective when instability is present or possible. Forecasted TREND HL

Moving Averages Considers underlying factors that are expected to influence future sales. Trends Seasonal variations Cyclical variations Random variations HL

Moving Averages Calculation Calculated based upon “moving” totals gathered from sales figures. Quarterly Sales figures Four-Period moving total (1st, 2nd, 3rd, 4th) Daily Sales figures Seven-Period moving total (Monday….. Sunday) Monthly Sales figures Twelve-Period moving Total (January….December) Depending upon your industry, you determine which time-frame is appropriate for your business. HL

Moving Averages Calculation 1 Year 2 Quarter 3 Sales Revenue 4 4-Qtr Moving Total 5 8-Qtr Moving Avg 6 Qtrly Moving Avg (trend) / Mid point of data range for 8-qtr moving average HL

Moving Averages Calculation – computing variations 1 Year 2 Quarter 3 Sales Revenue 6 Qtrly Moving Avg (trend) 7 Seasonal Variation 8 Avg Seasonal Variation 9 Random Variation Seasonal Variation=Actual (column 3) – Moving Avg (column 6) Average Seasonal = Determine the average for each seasonal quarter Avg for Qtr 3 = (not show) = 155/3 = HL

Moving Averages Calculation – computing variations 1 Year 2 Quarter 3 Sales Revenue 6 Qtrly Moving Avg (trend) 7 Seasonal Variation 8 Avg Seasonal Variation 9 Random Variation Random Variation= Difference between seasonal and average seasonal calculations – = HL

Moving Average Plotting the trend 1. Plot the trend (moving average – column 6) 2. Extrapolate into the future – using slope or line of best fit 3. Use the graph to determine the forecast 4. Adjust by the average seasonal variation for the time period (Qtr 1, Qtr 2, Qtr 3, or Qtr 4) HL

Moving Average Forecast The estimated forecast for nd qtr = 208,000 – 4,600 seasonal adjustment for quarter 2 = $203,400 forecasted Sales line of best fit HL

Moving Average – Advantages vs Disadvantages AdvantagesDisadvantages Useful for identifying and applying seasonal variations and predictions. Fairly complex to calculate. Reasonably accurate for short-term forecasts during stable economic times. Forecasts further into the future are less accurate as projections are made based on past data. Identifies the average seasonal variations for each time period which aids in planning for future quarters. Forecasting for longer time periods may require the use of more qualitative methods and are less dependent on past results. HL