The Four Ps of marketing are product, price, place, and promotion. If you have the right product costing the right price, available at the right place, and you promote it properly to the right market, you have a good chance for success. Determining these four important factors is what marketing research is all about.
Ignoring this initial research can be a major contributor to product and business failures because proper and thorough research builds a foundation of information from which you can develop sound marketing and business strategies.
Do not use the excuse, “My company is small and I don’t need nor can I afford research.” On the contrary, you probably cannot afford a costly mistake to make a poor marketing decision that will lose you some hard-earned dollars.
Companies that consider products with high development, carrying, or manufacturing costs would definitely be embarking on a risky expedition if they pursued the product before researching it.
To avoid such a risk, be sure to study the research steps and procedures discussed in this blog post on marketing research.
What Should Be Researched?
Product testing is one of the most basic and widely used types of market research. As the manufacturer or marketer of a product, (consumer, industrial, or business), you have performed some product testing whether you did so intentionally or not.
Essentially, every time you get feedback from your customer as to the performance of your product and suggested improvements, you have obtained tangible research results. A conscience effort on a large-scale basis, however, is the most scientific way to get productive input.
According to Advertising Age less than two percent of the new products introduced in a market achieve adequate sales results to consider them successful. The reasons for failure on consumer products are as follows:
- Vague idea of target consumer – 36%
- Poor product positioning – 32%
- No point of difference – 20%
- Bad timing – 16%
- Product performance -12%
- Wrong market for company – 8%
The first three reasons mentioned are so similar that it really means that 88 percent of all product failures are caused by lack of differentiation in the marketplace!
This failure to differentiate frequently carries through to the company’s positioning as well – often contributing to an overall company failure in the market. Most of these failures, with exception of “bad timing,” can often be avoided by performing the proper research in the new product development cycle.
New Product Development Cycle
The new product development cycle has several research steps. They are:
Opportunity identification often starts through informal interviewing of people that may have a general interest in the type of product an inventor is planning to create or the existing product an entrepreneur retailer or manufacturer is planning to sale.
Larger group discussions can lead to many answers on whether there is a need for the product, if there is an adequate market available in which to launch the product, or whether there are “holes” in the market that a new product can fill.
If you are developing a new product, do the positioning analysis to determine if there is a profitable niche in your marketplace for the product.
Other information necessary in opportunity identification includes:
- Market size estimates of annual expenditures
- Market size trends
- Market shares of competitors
- Profiles of competitive companies
- Industry practices
- Advertising expenditures by competitors
- Technological developments in the product line
- Consumer use patterns
Much of this information can be obtained through industry sources, government publications, outside research firms like A.C. Nielsen, annual reports on competitive firms, trade publications and associations, and your own studies.
Most are straightforward and easy to obtain. Market size estimates, however, warrant a brief discussion.
When you attempt to figure out the size of a market, you are ultimately trying to arrive at a monetary figure that represents the total number of dollars a particular segment will spend in one year on a specific product.
This task obviously requires some research and some arithmetic, and you need to be careful to do the calculations correctly so you do not draw incorrect conclusions from your results.
For example, ABC Furniture Company, a manufacturer of accessory furniture items, needs to estimate its market size. Before making the market size calculation, the company must:
- Determine the geographic segment of the market it wishes to target.
- Determine the income bracket of its typical buyer.
- Find the total number of households (or prospects) in the designated geographic segment that have income levels in the target range
- Determine the percentage of total annual income spent on home furnishings, and how much of that figure was devoted to accessory items. (These figures are usually available through most large trade associations.)
By researching the above factors through appropriate agencies and associations, their research indicated the following:
- Their geographic segment is Southern California.
- Families with incomes of more than $25,000 are most apt to be the ultimate purchaser of ABC Furniture Company products.
- Census tables indicated 973,427 households (or prospects) with the target income are located in Southern California.
- Information from the Home Furnishing Association indicated that approximately 4 percent of the total annual income of these households is spent on home furnishings, and about 4 percent of that, which figures out to be $55 annually, is spent on accessory items.
For the ABC Furniture Company, the market size estimate formula is:
973,427 (A) x 4 (B) X 55 (C) = $2,141,539 (D)
A = Total number of households with proper income
B = Percentage of total annual income spent in the overall industry
C – Amount of money spent specifically on accessory items
D = Market size estimates of annual expenditures
The $2,141,539 figure is the market size estimate of annual expenditures on accessory merchandise within Southern California. The Determining Your Market Size Worksheet at the end of this blog post will help you assess some of the information you will need to determine your market size.
Concept screening is used to test the multitude of ideas that will be generated when you initially identify your opportunity. During this step of product research, you will be researching the second of the Four Ps — price.
You need to consider how to price the product as well as perceive its value considerations.
- Other key issues usually investigated during concept screening are:
- Buying intent;
- Reasons for interest or lack of interest in the new product;
- Expected frequency of purchase;
- Uniqueness of the product; and
- The need for the new product in the existing marketplace or the potential of the new product to create a new market.
Once you are confident you have a feasible idea, it is time to turn the concept into a physical product. Depending on the complexity of the product, this step is generally the longest in the development cycle as prototypes must be developed, tested, and continually refined.
It is important to consider the “total” product in this step and all of the components necessary to getting that product to market. These components will include:
- Product testing;
- Package research and testing;
- Name, slogan, and logo research;
- Product positioning research; and
- Advertising research.
Consider the strategic relationships you have developed or will be developing as part of your product planning sessions. As relationships are formed, you gain credibility and visibility in one or more areas of your customer accounts.
By building on credibility you have already established within your existing customer base, new products can be introduced faster and at a lower cost than developing a new product for a new market.
Test marketing is the last check in determining the viability of a product before going into mass production and distribution. If you are a manufacturer, for instance, you may produce a limited quantity of a new product; put it on the market; see how it actually sells; then, if it sells well, “roll out” or introduce that product on a broad-scale basis.
Service firms go through the same process by offering new services to a small target market to determine viability, then offering them to a broader target.
A retailer would test market a new product to see if it sells well in their store before ordering a large quantity.
To perform a market test, the first thing you need to do is determine what variables regarding your product you need to test.
Those variables may include product attributes, such as color or size, or it could include a test between various media options, such as Google Search Ads responses compared to direct mail or Facebook ads responses. You should always include price, or price point, testing in your test marketing.
For example, can you sell your product for $40, $50, or $60? Other variables you test could be packaging; does package A or B get the most attention and sell more product?
In addition, you can test your method of demonstrating your product. There are a whole raft of variables you can and should test either before or after you introduce your product so you can continue to refine it.
The most important questions you must ask when testing a new product are:
- Can you sell your product or service for a price that is profitable?
- Are the attributes of your product or service desirable and saleable?
- Are the promotional materials delivering the right message?
- Have you correctly identified your target market?
- Which media advertising produces the best results?
- Which packaging encourages the most sales?
- What constitutes a success? By what criteria will you continue your test or introduction of the product?
- What do you have to do to prepare for the next phase of testing or product introduction?
Whether you are testing before, during, or after product introduction, you must determine the following:
- Consumer awareness;
- Consumer acceptance – how many people have purchased or intend to purchase;
- How many purchasers will purchase again;
- What a purchaser’s experience was with the product; and
- Why non-purchasers have not tried the product.
Quantify the results of every test you make. Do not trust it to memory, and do not guess at the quantification. Be sure to specifically track results.
If you are testing headlines in an ad, for example, be sure you know which ad purchasers saw. If you are testing a particular price, quantify what percentage of your sales were made at what price, and so forth.
By quantifying the results of each phase of your test, you will be able to forecast sales, order materials, and project cash flow more accurately.
One of the keys to an accurate test market is to test only one variable at a time. Each test should only test one variable. In other words, do not change your promotional pieces and your price in the same test.
This would only cause confusion when trying to determine why the test’s results ended up the way they did. (While it is possible to test various variables in one test it would require advanced skills and very large samples).
Test marketing should be a perpetual process. Even though there are clearly defined phases of testing in the initial stages of your product development, ongoing testing should be incorporated into your long-term plan, so you will find more and more avenues of increasing sales and reducing sales costs.
Because these avenues change as your market changes, perpetual testing of all variables is recommended.
Case in Point: Simple Test Marketing for Accountant / Tax Services
ABC Tax Services is in the business of accounting for sole proprietors. Because the company had a tight budget, it was vital that it determined the most cost-effective advertising media available.
In this case, the company tested Facebook ads and direct mail. In this type of test, the winning scenario is which media advertising delivered the lowest cost-per-lead or most leads in the given budget.
ABC Tax Services used a $1,500 budget for carefully targeted Facebook ads (mostly fans of Facebook fan pages dedicated to micro-entrepreneurship). Concurrently, it mailed 1,500 direct mail packages to newly-registered sole proprietors for a total cost of $1,500 (the database was easily obtainable – and free).
The offer in both of these campaigns was the same: trial offer of 3 months of free service then recurring at $299 a month. The copy was virtually the same (as permitted by the different media).
What resulted is that the direct mail campaign generated 90 inquiries/leads, which cost $16.67 each. The Facebook ads only generated 30 inquiries/leads and the cost-per-lead was $50 each.
Before ABC Tax Services decided to eliminate Facebook advertising from its media options, it needed to verify what was the actual quality of the generated leads from, separately, direct mail and Facebook campaigns.
This is often described as earnings-per-lead or EPL. While the offer, $299 a month, was the same in both campaigns, not all leads converted from trial offer to paid offer.
And this was the case with the test conducted by ABC Tax Services: only 50% of leads generated by Facebook turned into paid customers while 65% of direct mail leads converted to the paid offer.
This meant the EPL for Facebook campaign was $149.5 and for direct mail – $194.35. All the more reason to scale the direct mail campaign as it produced more sales for less dollars.
(Note: the sample above and resulting leads, only 100 in total, may not be sufficient to conduct a full rollout. If you have small samples, verify them with larger tests.)
You would apply this same principle to each of your tests, regardless which variable you tested.
Through their test marketing, the ABC Tax Services discovered that the initial offer (and service) had to be modified slightly, but was saleable and potentially quite profitable. When other variables were tested, the $349 price point was the winner and a trial of just 1 month was equally good at generating leads.
After the test marketing was completed, a follow-up questionnaire was used to get specific feedback from the respondents. This is a great way to get more sales and market research data for your company.
By the time you get to the product introduction step, you should be on the road to success. Future blog posts will deal with the necessary how-tos of performance marketing so you can accomplish your sales and distribution goals.
Primary and Secondary Research
When determining your product, price, place, and promotion, you will need to do both primary and secondary research.
Because many industries change so rapidly and others have totally unique information requirements, you may find it necessary to design and conduct an original or hands-on research project – such as a survey or questionnaire – to get necessary information. This type of research is called primary research.
Primary research typically includes the design of a questionnaire that will be used in some form of a survey, such as through phone inquiries, direct mail, online, or in-person interviews.
Regardless of the methodology you use, keep in mind that original or primary research projects can sometimes provide you with information you can use to your advantage in other aspects of your performance marketing program.
For instance, in your questionnaire, you may wish to include several questions that are of widespread interest to your business community or industry.
If you can develop a few questions where the results will have newsworthy value, you can probably get some free press from the local media based on your survey results.
Very often, editors will run a feature based on the results of a primary research project. If this happens, you receive both positive public relations and information that helps you appear credible in your community and in your industry.
Conducting a Survey
When conducting your own survey – as opposed to hiring a research company – consider not letting the respondents know that is the case.
Many individuals and companies may be reluctant to disclose information or will alter information when reporting directly to the company requesting it.
They may think that you will put them on a “spam” list afterwards or have a salesperson call on them, or they may simply alter their answers because they do not want to offend or upset someone at your company.
To encourage response, represent yourself as a third, independent party conducting the survey. Your survey may deal with the pricing, packaging,
awareness of your product, effectiveness of your advertising, or any number of other factors.
Put a lot of thought into determining what information you need, and always pre-test your questionnaire before you launch the actual study.
A pre-test always reveals some questions that are misinterpreted or responses that had not been anticipated or considered.
The method you use to conduct your study will often be driven by your time frame and budget. Your options include online or mailed questionnaires, phone interviews, and in-person interviews.
Certain industries may not have an option on their methodology. For instance, a business-to-business marketer may have a difficult time with either of the last two methods because it is difficult to get many businesspeople on the phone, and depending on the market area, next to impossible to meet with them for an in-person interview.
How Many Surveys to Send
Do not think you have to get a huge number of respondents to obtain an accurate reading of your results. Most national consumer studies only require 1,200 to 1,500 responses to get statistically accurate results.
So, first determine the size of your entire potential market (your universe). Then, refer to a sampling size chart – found in most market research text books or sample calculators online – and determine how many questionnaires you should distribute.
Typically, mailed surveys will get a higher response rate (even over 30%) than those just emailed (5-15% is fine). You will get higher response when you contact your own customers and even higher if you connect the survey to the recent action they took, e.g. an order, a warranty claim, a phone to your support etc.
The more personalized and the less looking like an ad your invitation to complete the survey is, the better the response.
To encourage a high percentage response, you may wish to use some direct response / performance marketing tricks.
Often, an inexpensive, free gift can more than double your response. When overall costs are considered, it will frequently result in a lower cost per response. Attaching money to the mailed survey – usually $0.25 to $1.00 will do – to the questionnaire will increase your response. Any gift or incentive will almost always increase your response rate.
Gifts or incentives may skew the results though. Consider an A/B test where your control has no gift, and the “B” version has one. When you tabulate the results, both of the groups should give your pretty much the same answers and conclusions. If that is not the case then your gift is likely the culprit.
Keep your questionnaire short and to the point. Usually 10 to 15 multiple choice questions will get you the best response. But, if you have to ask a lot of questions, be prepared to offer a more substantial incentive.
What Questions to Ask: Most Textbooks & Experts Get It All Wrong
Many experts will provide you with ready-made questionnaires, all good for all purposes. Some books will make you believe there are general questions you have to ask each and every time.
Think first about problems you would like to solve. Make a list of business questions you need answers to. Make a list of hypotheses you would like to verify.
Just then prepare your questions – considering the above.
If you can obtain answers through other means than the survey, do so (i.e. by querying your prospects database; by third-party spy tools and business intelligence tools; by conducting behavioral marketing tests described above).
Generally, people do not know what makes them buy, take action, prefer one brand over another etc. Therefore you need to prioritize research that considers behavior (i.e. dry or wet tests with your products which ask for order) over declarations (i.e. surveys asking if someone would consider buying your product).
Secondary research projects are usually less time consuming than primary research projects because secondary research can be conducted by referencing existing sources. These can be annual reports, trade publications, directories, industry reports. While some of these can be costly they may be available through your… local public library’s digital resources (i.e. Datamonitor’s industry reports).
But above all my favorite resources are spy tools. For example:
- If you are into ecommerce (Shopify, Amazon, dropshipping, or driving cold Facebook traffic to whitehat ecommerce landing pages and need new consumer products), use either FindNiche to analyze best sellers on AliExpress or Shopify shops, or one of a dozen of Amazon spy tools.
- If you are into affiliate business and buying traffic, and need to research money-making landers, banneres, products or traffic sources, use AdBeat, AdPlexity and other spying services.
- If you are considering a product launch for B2B, check first if people are looking for a problem you are solving, i.e. use Google Adwords Planner to assess the search engine traffic volume for the appropriate keywords.
- If you are into DRTV / TV infomercials, spy on your competitors, their products, media volume and the creative with Dr Metrix AdSphere.
- If you are into Google Search or Bing Search as a traffic source, use spy tools like SpyFu to find competitor’s keywords you are not already buying.
If there is no spy tool for your distinct business needs, consider alternative solutions. For example:
One of my clients that is into general management training business wanted to launch several specialized (“niched”) training programs. The preliminary research was super simple: look through Amazon’s best sellers in business books, analyze most-read articles on business websites that provide this information, and then check via Adwords Keyword Planner which of the topics gets most searches on a monthly basis.
See more on competitive scanning in my Glossary.
Ideas: Research Methods for Manufacturers and Wholesalers
If you are a manufacturer or wholesaler, here are some ways to gather some necessary information through primary research. Use these ideas to inspire ones more applicable to your situation or implement them as is.
Conduct Surveys through Field Reps
Manufacturers and wholesalers typically have an easy way to conduct research: through their field reps.
These individuals are in touch with your market on a day-to-day basis and can easily carry a survey questionnaire or conduct a spot survey on the phone while they are conducting the rest of their business.
You may get some bias with this method (so some training is in order), however, because it will be apparent who is performing the research.
Regardless, the flip side is that you will get some fast and inexpensive feedback from your marketplace that will help you make better marketing decisions.
To keep respondent bias at a minimum, instruct your field reps to ask for honest feedback on the survey questions so you can truly fix your problems and enhance your products and services to the customer.
You will often find that customers are impressed with your firm because it is trying harder to please them, and in the long run, this could increase your sales and promote a good reputation.
Ideas: Research Methods for E-commerce
It is never advisable to interrupt your e-commerce user with a survey while he or she is browsing through your products (so that the conversion rate does not go down). But when the order is complete, there is no reason not to ask your customers for help.
Incorporate a Survey in Other Marketing Communications
Add your survey to:
- the package sent to the customer;
- on the thank you page with order summary;
- in your transactional email;
- the product’s manual;
- as an option in your IVR menu at your phone support line, etc.
Ideas: Research Methods for Retailers
If you are a retailer, you have the advantage of using your business location as a survey setting. While customers are coming in, browsing, and leaving your retail location, you can take advantage of some of the research strategies listed below.
Offering free refreshments is an effective way to get people to complete a survey. This is especially easy for retailers who have soft drink or coffee dispensers, but the idea can work for any retailer. Simply promise potential respondents a small reward of refreshments for the time they spend completing your questionnaire.
Future Monetary Compensation
As a way to have customers complete your questionnaire, consider giving potential respondents a discount coupon that can be used on future purchases at your business. This is can be a great incentive! And as mentioned earlier, incentives can increase your survey’s response rate.
Because a person-to-person survey requires an individual to personally approach another person and request their time and assistance, more people tend to respond more favorably.
Many people want to help others and when asked politely for their time, they are willing to give it. In addition to the personal appeal factor, person-to-person surveys can reach people throughout the store, while they are browsing, and before they make it to the checkout counter.
Ideas: Research Methods for Service Firms
Because your business has a service to offer and you and your staff are professional experts in performing your services, you have a unique research method and marketing strategy you can take advantage of – the double whammy!
The Double Whammy
This is an excellent strategy available to anyone with an expertise or skill that is readily needed or is of interest to a particular market segment.
To gain exposure and credibility for your service firm, have yourself or one of your key employees actively seek speaking engagements or sponsor seminars or workshops on how to do your particular skill.
In any such group gathering, it is easy to get your motivated crowd to participate in a small survey! You not only get the benefit of the exposure before a group, but you also have a fast and easy way to conduct a study.
In addition, consider having yourself or one of your key employees write an easy-to-read, tip-oriented article and submit it to trade and industry magazines and websites for possible publication.
At the end of the article, you can ask readers to call for more information on upcoming seminars or workshops. By doing this, you not only gain media exposure, but respondents can provide you with valuable feedback and potential sales.
- The Four Ps of marketing are product, price, place, and promotion.
- Research is the key to avoiding a costly mistake in product introduction and marketing.
- To analyze market opportunities, you must perform opportunity identification, concept screening, product development, test marketing, and product introduction.
- In any test, test only one variable at a time to obtain accurate results.
- Quantify all test results.
- Testing can be simple and inexpensive.
- Most needed information is available through existing secondary research sources, but sometimes, original or primary research, such as conducting a survey needs to be completed.
- Always pre-test survey questionnaires.
- Offer incentives to get higher response rates to your survey.
- Test groups can be relatively small.
(Worksheets will be available soon.)