Mathematics of market research

Summary: Quantitative and qualitative methods are used to analyze data and guide business decisions.

Market research is a field of study and practice focused on gathering information about markets and customers for the purpose of improving sales or other business outcomes, though similar techniques have been applied to public awareness campaigns designed to change behavior such as smoking and weight loss. Market research draws from a variety of disciplines, with mathematics, statistics, actuarial science, psychology, and business being particularly influential. Careers in market research require strong quantitative skills and market researchers may be required to use concepts from algebra, trigonometry, geometry, calculus, economics, or statistics. Statistical data collection using surveys, experiments, and focus groups is widespread. Both quantitative and qualitative methods are used to analyze these data and guide decisions. Statistical and mathematical models are also developed to try to explain consumer behavior, predict future sales and trends, direct the optimal placement of advertising media or allocation of advertising funds, make consumer recommendations, and simulate market behavior. The availability of enormous consumer databases accumulated from credit cards, store discount cards, and many other sources has spurred the use of data mining techniques, like data fusion and clustering, to merge sometimes-incomplete data sources and then classify subgroups of consumers according to selected criteria.

Types of Market Research

Market research is a broad field and it is important to understand several distinctions about how and why such research is conducted. The first distinction is between marketing intelligence and market research projects: the former is an ongoing, broad-based process of gathering and analyzing information; the latter are focused on a particular question or product and generally have a defined budget and time for completion. A second distinction is between exploratory and confirmatory research: exploratory research is usually conducted early in the decision cycle, and its goal is to discover what options exist; confirmatory research comes into play later in the cycle when the goal is to narrow options and decide which course of action to follow. These distinctions are crucial because the same technique can be used for different purposes; for instance, surveys or focus groups can be part of an ongoing and broad-based data collection effort or may be a one-time effort focused on a particular product or some aspect of a product. Both research techniques may be used either to gather a broad array of data whose purpose may not be known (which might be conceptualized as “seeing what’s out there”) or as a tightly focused effort at making distinctions to guide decision making among a small set of already-known options.

Another distinction is whether the research will be focused on sales to consumers or to other businesses. The former is sometimes called “business-to-consumer” (B2C), and the latter is called “business-to-business” (B2B) marketing. Most people are familiar with consumer market research and may have taken part in it, whether they were aware of it or not. Consumer market research is focused on the goal of selling a product to a large number of people (or, in a more general sense, of discovering their preferences). For instance, an entrepreneur might want to design a sports sneaker that will appeal to urban young men of high school age. Because of this focus on describing the preferences and judgments of groups, consumer market research often incorporates knowledge and techniques from social sciences, such as psychology, sociology, and anthropology. Techniques include surveys, focus groups, and ethnographic observation (observation of how people make choices or use products without interfering in that process).

B2B refers to commercial transactions between businesses. For instance, a wholesaler may sell goods to a retailer (who will then sell them to the public), or a supplier may provide goods necessary for business operations, such as paper, computers, and other office supplies for business. Although B2B accounts for a high volume of sales, the process of market research is different because the consumers may be assumed to have a high degree of knowledge about the product they will be buying, and usually a single individual or small department can make the decision for large purchases of goods. For these reasons, B2B market research may be focused differently, for instance, on discovering how a corporation views its own brand and how a product may be allied with that effort. However, as with consumer marketing, the goal is still to gain information that will allow businesses to develop and market products that meet the needs and desires of potential purchasers.

Another distinction is between qualitative research, which generally collects verbal data, and quantitative research, which collects information that may be translated into numbers. Qualitative research is often used for exploratory research and to gather information very early in the research process; for example, focus groups and unstructured interviews may be used to gather reactions to a new idea or product. When the research effort has progressed sufficiently that a few questions have been selected for further investigation, more structured quantitative research (for instance, a questionnaire-based survey) may be used to gather precise information relating to these questions.

The Research Process

The process of market research proceeds in a manner similar to much social science research, with the main difference being the ultimate goal. In the social sciences, it is generally to add to human knowledge, while in market research, it is generally to make an optimal business decision. In either case, the first step is to identify the question to be answered or the problem to be solved, a process that is particularly important when the research will be conducted by a separate department or a consulting group. The next step is to elaborate on the problem—exactly what information is required or what questions much be answered in order for a decision to be made? The third step is to identify which research techniques are most appropriate for answering the questions, including consideration of the time and other resources available. Once these steps have been completed, a study can be designed, including specification of a time frame and the data sources to be used.

In research, the distinction is often made between primary and secondary data sources. Primary sources are data that are collected by an individual or organization for its own use, for instance, conducting focus groups to see how people react to several versions of a new product a business is planning to introduce to the market. Secondary sources are those collected by someone else and then made available to others. Examples include government data sets such as the U.S. Census and data collected by private or university researchers for specific projects that are later made available for use by others.

Both primary and secondary data have their advantages and disadvantages. Collecting primary data allows the research team to specify exactly what data they want, for instance, color and design preferences among housewives in a specific urban area. They are generally more expensive because the researchers must collect the data themselves and they are necessarily more limited in scope. It is generally cheaper to use secondary data, and the scope is often much broader (for example, it may have been collected on a national or international basis) than could be collected by a small research team. However, secondary data may be several years out of date by the time it is available and may not focus specifically on the questions of interest for a particular marketing research project. Often, both types of data are combined in the same research project; for instance, U.S. Census data about neighborhoods (racial composition, median household income, etc.) can easily be combined with information from a primary, purpose-designed survey of individuals.

Bibliography

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Mariampolski, Hy. Qualitative Market Research: A Comprehensive Guide. Thousand Oaks, CA: Sage, 2001.

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McQuarrie, Edward F. The Market Research Toolbox: A Concise Guide for Beginners. Thousand Oaks, CA: Sage, 2006.

Percy, Larry, ed. Marketing Research That Pays Off: Case Histories of Marketing Research Leading to Success in the Marketplace. London: Haworth Press, 1997.

Swzwarc, Paul. Researching Customer Satisfaction and Loyalty: How to Find Out What People Really Think. Sterling, VA: Kogan Page, 2005.