2. Chapter 7 Themes for Class Discussion
Measuring Market Opportunities: Forecasting and Marketing Research
McGraw-Hill/Irwin
Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Of the two main approaches for sales forecasting -- top-down and bottom-up -- which is better?
Both approaches have merits:
Each process typically has access to different information, and will likely result in different forecasts
Using both methods concurrently adds confidence to the forecast, if both methods produce similar results
If the results of the two approaches differ, useful discussions of the underlying assumptions will be surfaced

4. Let’s consider the six evidence-based forecasting methods
Let’s consider the six evidence-based forecasting methods. What are their advantages and limitations?
Statistical methods
Observation
Surveys
Analogy
Judgment
Market tests
Statistical methods: advantages
Useful in established firms for established products
Likely to result in a more accurate forecast than other methods under stable market conditions
Statistical methods: limitations
Assumes the future will look very much like the past
Requires history
Not useful for new products with no history
Observation: advantages
Based on what people actually do
Observation: limitations
Observation is typically not possible for new-to-the-world products
Requires prior examples to observe
Surveys: advantages
Many different groups of respondents can be surveyed, from consumers to salespeople to suppliers, etc.
Does not require history or prior examples
Surveys: limitations
What people say is not always what people do
The persons being surveyed may not be knowledgeable, but when asked their opinion, they will probably provide it
What people imagine about a product concept in a survey may not be what is actually delivered once the product is launched
Analogy: advantages
Requires no history nor prior examples
Best when used for new product forecasting where neither statistical methods nor observations are possible
Also useful for new-to-the-world high-technology products, for which product prototypes are often either not available or extremely expensive to produce
Analogy: limitations
The proposed new product is never exactly like that to which the analogy is drawn
Market and competitive conditions may differ considerably from when the analogous product was launched
Judgment: advantages
Those with sufficient forecasting experience in a market they know well may be quite accurate in their intuitive forecasts.
Judgment: limitations
It is often difficult for them to defend their forecasts against those prepared by evidence-based methods when the two differ.
Market tests: advantages
Closest forecasting method to the true market
Market tests: limitations
Expensive to conduct
For consumer products sold through supermarkets and mass merchants, competitors can buy the data collected through scanners at the checkout and learn the results of the test market without bearing the expense.
Competitors can deliberately distort market conditions to invalidate the test

5. How does one go from methods to math?
Chain ratio method
Brand or category indices
What’s the logic behind the chain ratio method?
# of households in target market times concept purchase intent = # of households that will try if aware
# of households that will try if aware times awareness adjustment = # of households will try if they find product at their store
# of households will try if they find product at their store times distribution adjustment = # who will try the product
What’s the logic behind brand or category indices?
Category Development Indices report the ratio of consumption in a certain category to population in a defined geographical area.
Brand Development Indices compare sales for a given brand to population
Commonly used to assess whether a category or brand has above-average or below-average penetration in different geographic markets

6. What makes for good forecasting?
What are common pitfalls?
Keys to improve the credibility and accuracy of forecasts of sales and market potential
Make explicit the assumptions on which the forecast is based
Use multiple methods
Biases in forecasting
Forecasters are subject to anchoring bias
Capacity constraints are sometimes misinterpreted as forecasts
Incentive pay: bonus plans can cause managers to artificially inflate or deflate forecasts
Unstated but implicit assumptions can overstate a well-intentioned forecast

7. We’ve learned how to assess markets and industries, understand buyer behavior, and prepare forecasts. But where does the market knowledge come from to do so?
Four key kinds of systematic market knowledge systems
Internal records: examples?
Marketing databases: examples?
Competitive intelligence systems: examples?
Client contact systems: examples?
Plus marketing research targeted at particular marketing challenges

8. What about marketing research? Exactly what does this term mean?
The design, collection, analysis, and reporting of research intended to gather data pertinent to a particular marketing challenge or situation.
See definition

9. What are the steps involved in conducting marketing research?
Identify the managerial problem and define research objectives
Determine data sources
Design research
Collect data
Analyze data
Report results to the decision maker
Let’s look at each of the steps with an example
Instructor suggestion: Use an example of an actual research study with which you are familiar, or use one team’s class project to illustrate the steps in action.

10. Identify the managerial problem and define research objectives
Identify the managerial problem and define research objectives. Why does this matter?
Why is this important?
Without clear objectives, reporting the results will be difficult, conclusions may be lacking, resources will be wasted.
Identify the managerial problem and research objectives for the example you are discussing

11. Determine Data Sources: Two Key Questions
Q1: Primary or secondary data. Which is better?
Q2: Is qualitative or quantitative data needed, or both?
Which is better -- primary or secondary data?
If a research objective can be met using secondary data, that’s usually the best course to follow. Why?
It’s usually less costly to simply find existing secondary data than to collect the information as primary data all over again.
Secondary data are typically based on what people actually do, or how they actually behave.
Discuss whether primary or secondary data is best for the example at hand
Ask, “What is qualitative data best for? Quantitative? What are their limitations? Which should be done first?”
Qualitative data may yield deeper insights into consumer behavior than are available from quantitative research.
For this reason, qualitative data is often conducted first and used to guide subsequent quantitative research.
A drawback of qualitative research is that its generally small samples may not fairly represent the larger population.
The benefit of quantitative research lies in its measurement of a population’s attitudes toward or likely response to products or marketing programs.
Because of their larger sample sizes and quantitative metrics, greater confidence can be placed in quantitative studies.

12. Design Primary Research: Three Key Decisions
D1: Determine data collection method and prepare the research instrument
D2: Determine how to contact subjects
D3: Design sampling plan
What are our choices for the data collection method? What’s involved in preparing the research instrument for each?
Observation: a form is prepared on which the observer records what is being observed.
Surveys: writing a questionnaire, which will include questions and either scaled answers or spaces for open-ended answers.
Experiments: the researcher manipulates one or more variables either within the context of a survey or in a laboratory or field setting, in order to measure the effect of the manipulated variable on the consumer’s response.
What contact methods can we choose from? What are their strengths, drawbacks/
Face-to-face: response rate high, cost is high, timeliness is slow, and nonresponse bias is low.
Mail: response rate low, cost is low, timeliness is slow, and nonresponse bias is high.
Telephone: response rate moderate, cost is moderate, timeliness is fast, and nonresponse bias is moderate.
Fax: response rate moderate, cost is low, timeliness is fast, and nonresponse bias is high.
response rate low, cost is low, timeliness is fast, and nonresponse bias is high.
Internet: response rate low, cost is low, timeliness is fast, and nonresponse bias is high.
What must we decide to prepare a sampling plan? What margin of error is acceptable?
Who is the population from which the sample will be drawn?
What sample size is needed to provide the necessary level of confidence?
Will we use random or convenience sampling?
Instructor suggestion: Discuss margin of error associated with different sample sizes (see Exhibit 7.11).

13. Collecting, Analyzing, and Reporting the Data: Some Advice
Beware of collector bias
Know that response rates will be considerably less than 100%
Plan your analysis before you collect the data!
Plan how you’ll summarize and report the results before you collect the data!
See slide

14. What questions should informed users of marketing research ask, before approving a study?
What are the research objectives? Will the proposed study meet them?
Are the data sources appropriate? Secondary or primary? Qualitative or quantitative?
Is the research itself well designed?
Are the planned analyses appropriate?
See slide