Archive for the 'Marketing' Category

Shift the Infield, Go for Two, and Pull the Goalie Sooner!

Moneyball is one of my favorite books. It combines many interests of mine – statistics, baseball, and management. I once used it to inspire a client to think about their business differently. This client was a newly-named President of a firm and had brought us in to conduct some consumer market research. New management teams often like to bring in new research suppliers and shed their old ones, and in this case we were the beneficiaries.

In our initial meeting, I asked some basic marketing questions about how they decide to price their products or how much to spend on advertising. Each time his response was “this is how we have always done it” rather than a well-thought out rationale supporting his decision. For instance, most of his products were priced to retailers at 50% of the price to consumers because that is how it had been for decades. I asked him “what are the odds that your optimal pricing is 50% rather than something higher or lower?” What are the chances that a round number like 50% could be optimal for all products in all cases when he literally had thousands of products?

I sent him a copy of Moneyball when I returned from the trip because I knew he was a sports fan. He read it immediately. It sparked him to commission a consulting firm to delve deeply into pricing models and ultimately led to a significant change in their pricing policies. They no longer used 50% as a target and established different wholesale prices for each of their SKU’s based on demand and updated these prices regularly. A few years later, he told me that decision literally saved his firm millions of dollars and the pricing efficiency helped to distribute his products more effectively. He said this was probably the project he had led that had the biggest impact on his business since he had been there.

Businesses can use sports analogies too readily, but in this case it really worked. The rise of statisticians in sports has worked and there are lessons that businesses can learn from this.

I find it fascinating when old-timers and sports talk radio hosts lament the rise of “analytics” in sports. You can see the impact of statisticians every time you see a baseball team set up in a defensive shift, when you see a football team go for it on fourth down, or when you see a hockey team pull its goalie earlier than usual. These decisions being made more frequently and in situations where the prior norms of the game would have prevented them from happening. It is all because data jockeys have been given a seat at the sports management table to the chagrin of the purists.

But data geeks haven’t totally taken over sports and longstanding traditions continue to hold sway. For instance, in baseball it can be shown that more runs on average are scored in the first inning than in any other inning. This makes sense, as the first inning is the only time in the game when you can be sure your best hitters will be at the top of the batting order. So, why don’t major league teams start their closer and have him pitch the first inning? Instead, they reserve their most powerful pitcher for the 9th inning, when, more often or not, the game is already decided. I’ve been predicting that teams will figure this out and start their closer for about 20 years now and they haven’t done it yet. (The Tampa Rays did something close to this and had an “opener” pitcher in their rotation, but it didn’t work well because this pitcher wasn’t their most powerful arm.)

Similarly, hockey teams continue to be slow to pull their goalie when behind late in the game. Hockey coaches also continue to make a decision that baffles me every time. They are down by one goal late in the game so they pull their goalie and promptly surrender a goal. The first thing they do is put their goalie back in which makes no rational sense at all. If you are willing to take the risk of being scored upon when losing by one goal, you should be even more willing to do so when losing by two goals. There is an excellent paper on pulling the goalie (“Pulling the Goalie:  Hockey and Investment Implications.”) which shows that coaches aren’t pulling their goalie even close to quick enough.

These sports cases are interesting because it is the fans that always seem to notice the coaching strategy errors before the coaches and general managers. This illustrates the value of an outside perspective in organizations that have longstanding policies and traditions. I don’t think my client could have accomplished his pricing changes if he wasn’t brand new to the organization or if he didn’t hire a consulting firm to work out the optimal strategy. This change was not going to come from within his organization.

Businesses have been slow to adapt their thinking despite the vast amount of data at their disposal. Decisions are made all the time without consulting what the data are indicating. More relevant to our industry, in most organizations market research is still seen as a support function to marketing, as opposed to its equal. I don’t think I have ever heard of an organization where market research reports directly to senior management or where marketing reports into research, yet we often hear senior managers say that connecting to customers is the most critical part of their organization’s success.

Many saw Moneyball as a book about sports or a great movie. I saw it as one of the most important business books ever written. Its key message is to use data to break out of existing decision patterns, often to great success.

How COVID-19 may change Market Research

Business life is changing as COVID-19 spreads in the US and the world. In the market research and insights field there will be both short-term and long-term effects. It is important that clients and suppliers begin preparing for them.

This has been a challenging post to write. First, in the context of what many people are going though in their personal and business lives as a result of this disruption, writing about what might happen to one small sector of the business world can come across as uncaring and tone-deaf, which is not the intention. Second, this is a quickly changing situation and this post has been rewritten a number of times in the past week. I have a feeling it may not age well.

Nonetheless, market research will be highly impacted by this situation. Below are some things we think will likely happen to the market research industry.

  • An upcoming recession will hit the MR industry hard. Market research is not an investment that typically pays off quickly. Companies that are forced to pare back will cut their research spending and likely their staffs.
  • Cuts will affect clients more than suppliers. In previous recessions, clients have cut MR staff and outsourced work to suppliers. This is an opportunity for suppliers that know their clients’ businesses well and can step up to help.
  • Unlike a lot of other types of industries, it is the large suppliers that are most at risk of losing work. Publicly-held research suppliers will be under even more intense pressure from their investors than usual. There will most certainly be cost cutting at these firms, and if the concerns over the virus persist, it will lead to layoffs.
  • The smallest suppliers could face an existential risk. Many independent contractors and small firms are dependent on one or two clients for the bulk of their revenue. If those clients are in highly affected sectors, these small suppliers will be at risk of going out of business.
  • Smallish to mid-sized suppliers may emerge stronger. Clients are going to be under cost pressures due to a receding economy and smaller research suppliers tend to be less expensive. Smaller research firms did well post 9/11 and during the recession of 2008-09 because clients moved work from higher priced larger firms to them. Smaller research firms would be wise to build tight relationships so that when the storm over the virus abates, they will have won their clients trust for future projects.
  • New small firms will emerge as larger firms cut staff and create refugees who will launch new companies.

Those are all items that might pertain to any sort of sudden business downturn. There are also some things that we think will happen that are specific to the COVID-19 situation:

  • Market research conferences will never be the same. Conferences are going to have difficulty drawing speakers and attendees. Down the line, conferences will be smaller and more targeted and there will be more virtual conferences and training sessions scheduled. At a minimum, companies will send fewer people to research conferences.
  • This will greatly affect MR trade associations as these conferences are important revenue sources for them. They will rethink their missions and revenue models, and will become less dependent on their signature events. The associations will have more frequent, smaller, more targeted online events. The days of the large, comprehensive research conference may be over.
  • Business travel will not return to its previous level. There will be fewer in-person meetings between clients and suppliers and those that are held will have fewer participants. Video conferencing will become an even more important way to reach clients.
  • Clients and suppliers will allow much more “work from home.” It may become the norm that employees are only expected to be in the office for key meetings. The situation with COVID-19 will give companies who don’t have a lot of experience allowing employees to work from home the opportunity to see the value in it. When the virus is under control, they will embrace telecommuting. We will see this crisis kick-start an already existing movement towards allowing more employees to work from home. The amount of office space needed will shrink.
  • Research companies will review and revise their sick-leave policies and there will be pressure on them to make them more generous.
  • Companies that did the right thing during the crisis will be rewarded with employee loyalty. Employees will become more attached and appreciative of suppliers that showed flexibility, did what they could to maintain payroll, and expressed genuine concerns for their employees.

Probably the biggest change we will see in market research projects is to qualitative research.

  • While there will always be great value in traditional, in-person focus groups , the situation around COVID-19 is going to cause online qualitative to become the standard approach. We are at a time where the technologies available for online qualitative are well-developed, yet clients and suppliers have clung to traditional methods. To date, the technology has been ahead of the demand. Companies will be forced by travel restrictions to embrace online methods and this will be at the expense of traditional groups. This is an excellent time to be in the online qualitative technology business. It is not such a great time to be in the focus group facility management business.
  • Independent moderators, who work exclusively with traditional groups, are going to be in trouble and not just in the short term. Many of these individuals will retire or look for work elsewhere or leave research. Others will necessarily adapt to online methods. Of course, there will continue to be independent moderators but we are predicting the demand for in-person groups will be permanently affected, and this portion of the industry will significantly shrink.
  • There is a risk that by not commissioning as much in-person qualitative, marketers may become further removed from direct human interaction with their customer base. This is a very real concern. We wouldn’t be in market research if we didn’t have an affinity for data and algorithms, but qualitative research is what keeps all of our efforts grounded. I’d caution clients to think carefully before removing all in-person interaction from your research plans.

What will happen to quantitative research? In the short-run, most studies will continue. Respondents are home, have free time, and thus far have shown they are willing to take part in studies. Some projects, typically in highly affected industries like travel and entertainment, are being postponed or canceled. All current data sets need to be viewed with a careful eye as the tumult around the virus can affect results. For instance, we conduct a lot of research with young respondents, and we now know for sure that their parents are likely nearby when they are taking our surveys, and that can influence our findings for some subjects.

Particular care needs to be taken in ongoing tracking studies. It makes sense for many trackers to add questions in to see how the situation has affected the brand in question.

But, in the longer term there will be too much change in quantitative research methods that result directly from this situation. If anything, there will be a greater need to understand consumers.

Tough times for sure. It has been heartening to see how our industry has reacted. Research panel and technology providers have reached out to help keep projects afloat. We’ve had subcontractors tell us we can delay payments if we need to. Calls with clients have become more “human” as we hear their kids and pets in the background and see the stresses they are facing. Respondents have continued to fill out our surveys.

There is a lot of uncertainty right now. At its core, market research is a way to reduce uncertainty for decision makers by making the future more predictable, so we are needed now more than ever. Research will adapt as it always does, and I believe in the long-run it may become even more valued as a result of this crisis.

Common Misperceptions About Millennials

We’ve been researching Millennials literally since they have been old enough to fill out surveys. Over time, we have found that clients cling to common misperceptions of this generation and that the nature of these misperceptions haven’t evolved as Millennials have come of age.

Millennials are the most studied generation in history, likely because they are such a large group (there are now more Millennials in the US than Boomers) and because they are poised to soon become a dominant force in the economy, in politics, and in our culture.

There are enduring misconceptions about Millennials. Many stem from our inability to grasp that Millennials are distinctly different from their Gen X predecessors. Perhaps the worst mistake we can make is to assume that Millennials will behave in an “X” fashion rather than view them as a separate group.

Below are some common misconceptions we see that relate to Millennials.

  • Today’s kids and teens are Millennials. This is false as Millennials have now largely grown up. If you use the Howe/Strauss Millennial birth years Millennials currently range from about 16 to 38 years old. If you prefer Pew’s breaks Millennials are currently aged 23 to 38. Either way, Millennials are better thought of as being in a young adult/early career life stage than as teenagers.
  • Millennials are “digital natives” who know more about technology than other generations. This is, at best, partially true. The first half of the generation, born in 1982, hardly grew up with today’s interactive technology. The iPhone came out in 2007 when the first Millennial was 25 years old. Millennials discovered these technologies along with the rest of us. A recent Pew study on technological ownership showed that Millennials do own more technology than Boomers and Xers, but that the gap isn’t all that large. For years we have counseled clients that parents and teachers are more technologically advanced than commonly thought. Don’t forget that the entrepreneurial creators of this technology are mainly Boomers and Xers, and not Millennials.
  • Millennials are all saddled with college debt. We want to tread lightly here, as we would not want to minimize the issue of college debt which affects many young people and constrains their lives in many ways. But we do want to put college debt in the proper perspective. The average Millennial has significant debt, but the reality is the bulk of the debt they hold is credit card debt and not college debt. College debt is just 16% of the total debt held by Millennials. According to the College Board 29% of bachelor’s degree graduates have no college debt at all, 24% have under $20,000 in debt, 30% have between $20,000 and $30,000 in debt, and 31% have over $30,000 in college debt. The College Board also reports that a 4-year college graduate can expect to make about $25,000 per year more than a non-graduate. It is natural for people of all generations to have debt in their young adult/early professional life stage and this isn’t unique to Millennials. What is unique is their debt levels are high and multi-faceted. Our view is that college debt per se is not the core issue for Millennials, as most have manageable levels of college debt and college is a financially worthwhile investment for most of them. But college debt levels continue to grow and have a cascading effect and lead to other types of debts. College debt is a problem, but mostly because it is a catalyst for other problems facing Millennials. So, this statement is true, but is more nuanced than is commonly perceived.
  • Millennials are fickle and not loyal to brands. This myth has held sway since before the generation was named. I cannot tell you how many market research projects I have conducted that have shown that Millennials are more brand loyal than other generations. They express positive views of products online at a rate many times greater than the level of complaints they express. Of course, they have typical young person behaviors of variety-seeking and exploration, but they live in a crazy world of information, misinformation, and choice. Brand loyalty is a defense mechanism for them.
  • Millennials are fickle and not loyal to employers. On the employer side, surveys show that Millennials seek stability in employment. They want to be continuously challenged and stay on a learning curve. We feel that issues with employer loyalty for Millennials go both ways and employers have become less paternalistic and value young employees less than in past times. That is the primary driver of Millennials switching employers. There are studies that suggest that Millennials are staying with employers longer than Gen X employees did.
  • Millennials are entrepreneurial. In reality, we expect Millennials to be perhaps the least entrepreneurial of all the modern generations. (We wrote an entire blog post on this issue.)
  • Millennials seek constant praise. This is the generation that grew up with participation trophies and gold stars on everything (provided by their Boomer parents). However, praise is not really what Millennials seek. Feedback is. They come from a world of online reviews, constant educational testing, and close supervision. The result is Millennials have a constant need to know where they stand. This is not the same as praise.
  • Millennials were poorly parented. The generation that was poorly parented was Gen X. These were the latch-key kids who were lightly supervised. Millennials have been close with their parents from birth. At college, the “typical” Millennial has contact with their parent more than 10 times per week. Upon graduation, many of them choose to live with, or nearby their parents even when there is no financial need to do so. Their family ties are strong.
  • Millennials are all the same. Whenever we look at segments, we run a risk of typecasting people and assuming all segment members are alike.  The “art” of segmentation in a market research study is to balance the variability between segments with the variability within them in a way that informs marketers. Millennials are diverse. They are the most racially diverse generation in American history, they span a wide age range, they cover a range of economic backgrounds, and are represented across the political spectrum. The result is while there is value in understanding Millennials as a segment, there is no typical Millennial.

When composing this post, I typed “Millennials are …” into a Google search box. The first thing that came up to complete my query was “Millennials are lazy entitled narcissists.” When I typed “Boomers are …” the first result was “Boomers are thriving.”  When I typed “Gen X is …” the first result was “Gen X is tired.” This alone should convince you that there are serious misconceptions of all generations.

Millennials are the most educated, most connected generation ever. I believe that history will show that Millennials effectively corrected for the excesses of Boomers and set the country and the world on a better course.

Truth Initiative wins Ogilvy for Opioid Campaign

Truth Initiative has won two 2019 Ogilvy awards for its campaign against opioid misuse.

The ARF David Ogilvy Awards is the only award that honors the research and analytics insights behind the most successful advertising campaigns. Crux Research, along with our research partners at CommSight, provided the research services for this campaign.

A case study of the campaign can be found here

You can view spots from the campaign here and here.

We are very proud to have provided Truth Initiative with research support for this important campaign.

How to be an intelligent consumer of political polls

As the days get shorter and the air gets cooler, we are on the edge of a cool, colorful season. We are not talking about autumn — instead, “polling season” is upon us! As the US Presidential race heats up, one thing we can count on is being inundated with polls and pundits spinning polling results.

Most market researchers are interested in polls. Political polling pre-dates the modern market research industry and most market research techniques used today have antecedents from the polling world. And, as we have stated in a previous post, polls can be as important as the election itself.

The polls themselves influence voting behavior which should place polling organizations in an ethical quandary. Our view is that polls, when properly done, are an important facet of modern democracy. Polls can inform our leaders as to what the electorate cares about and keep them accountable. This season, polls are determining which candidates get on the debate stage and are driving which issues candidates are discussing most prominently.

The sheer number of polls that we are about to see will be overwhelming. Some will be well-conducted, some will be shams, and many will be in between. To help, we thought we’d write this post on how be an intelligent consumer of polls and what to look out for when reading the polls or hearing about them in the media.

  • First, and this is harder than it sounds, you have to put your own biases aside. Maybe you are a staunch conservative or liberal or maybe you are in the middle. Whatever your leaning, your political views are likely going to get in the way of you becoming a good reader of the polls. It is hard to not have a confirmation bias when viewing polls, where you tend to accept a polling result that confirms what you believe or hope will happen and question a result that doesn’t fit with your map of the world. I have found the best way to do this is to first try to view the poll from the other side. Say you are a conservative. Start by thinking about how you would view the poll if you leaned left instead.
  • Next, always, and I mean ALWAYS, discover who paid for the poll. If it is an entity that has a vested interest in the results, such as a campaign, a PAC, and industry group or lobbyist, go no further. Don’t even look at the poll. In fact, if the sponsor of the poll isn’t clearly identified, move on and spend your time elsewhere. Good polls always disclose who paid for it.
  • Don’t just look to who released the poll, review which organization executed it. For the most part, polls executed by major polling organizations (Gallup, Harris, ORC, Pew, etc.) will be worth reviewing as will polls done by colleges with polling centers (Marist, Quinnipiac, Sienna, etc.). But there are some excellent polling firms out there you likely have never heard of. When in doubt, remember that Five Thirty Eight gives pollsters grades based on their past performances.  Despite what you may hear, polls done by major media organizations are sound. They have polling editors that understand all the nuances and have standards for how the polls are conducted. These organizations tend to partner with major polling organizations that likewise have the methodological muscle that is necessary.
  • Never, and I mean NEVER, trust a poll that comes from a campaign itself. At their best, campaigns will cherry pick results from well executed polls to make their candidate look better. At their worst, they will implement a biased poll intentionally. Why? Because much of the media, even established mainstream media, will cover these polls. (As an aside, if you are a researcher don’t trust the campaigns either. From my experience, you have about a 1 in 3 chance of being paid by a campaign for conducting their poll.)
  • Ignore any talk about the margin of error. The margin of error on a poll has become a meaningless statistic that is almost always misinterpreted by the media. A margin of error really only makes sense when a random or probability sample is being used. Without going into detail, there isn’t a single polling methodology in use today that can credibly claim to be using a probability sample. Regardless, being within the margin of error does not mean a race is too close to call anyway. It really just means it is too close to call with 95% certainty.
  • When reading stories on polls in the media, read beyond the headline. Remember, headlines are not written by reporters or pollsters. They are written by editors that in many ways have had their journalistic integrity questioned and have become “click hunters.” Their job is to get you to click on the story and not necessarily to accurately summarize the poll. Headlines are bound to be more sensational that the polling results merit.

All is not lost though. There are plenty of good polls out there worth looking at. Here is the routine I use when I have a few minutes and want to discover what the polls are saying.

  • First, I start at the Polling Report. This is an independent site that compiles credible polls. It has a long history. I remember reading it in the 90’s when it was a monthly mailed newsletter. I start here because it is nothing more than raw poll results with no spin whatsoever. Their Twitter feed shows the most recently submitted polls.
  • I sometimes will also look at Real Clear Politics. They also curate polls, but they also provide analysis. I tend to just stay on their poll page and ignore the analysis.
  • FiveThirtyEight doesn’t provide polling results in great detail, but usually draws longitudinal graphs on the probability of each candidate winning the nomination and the election. Their predictions have valid science behind them and the site is non-partisan. This is usually the first site I look at to discover how others are viewing the polls.
  • For fun, I take a peek at BetFair which is an UK online betting site that allows wagers on elections. It takes a little training to understand what the current prices mean, but in essence this site tells you which candidates people are putting their actual money on. Prediction markets fascinate me; using this site to predict who might win is fun and geeky.
  • I will often check out Pew’s politics site. Pew tends to poll more on issues than “horse race” matchups on who is winning. Pew is perhaps the most highly respected source within the research field.
  • Finally, I go to the media. I tend to start with major media sites that seem to be somewhat neutral (the BBC, NPR, USA TODAY). After reviewing these sites, I then look at Fox News and MSNBC’s website because it is interesting to see how their biases cause them to say very different things about the same polls. I stay away from the cable channels (CNN, Fox, MSNBC) just because I can’t stand hearing boomers argue back and forth for hours on end.

This is, admittedly, way harder than it used to be. We used to just be able to let Peter Jennings or Walter Cronkite tell us what the polls said. Now, there is so much out there that to truly get an objective handle on what is going on takes serious work. I truly think that if you can become an intelligent, unbiased consumer of polls it will make you a better market researcher. Reading polls objectively takes a skill that applies well to data analysis and insight generation, which is what market research is all about.

Demand Curves Always Slope Downward

Last month marked 30 years since I received my MBA. This anniversary has made me think critically about what I learned in business school and to judge what proved helpful and what did not. I will be the first to admit I have a good, yet sometimes selective memory for these things.

I had many outstanding business professors. They were far superior to the teachers I encountered as an undergraduate. There was one professor in particular I will always remember. I took an economics course from him and later took a business law course from him. I had little interest in business law and took the course solely because he was such a great lecturer.

He devoted the final lecture of his business law course to a topic that had nothing to do with law. He stated that there was a simple tenet we should always keep in mind. If we learned nothing else from our time in the program it should be this: demand curves always slope downward.

He then predicted that during our careers we will encounter many situations where people will try to convince us otherwise. We will see things in the business and popular press that ignore this basic concept. But, unlike the others, we will never fall for it because it is the one mistake he was on a crusade to ensure that none of his students would ever get wrong.

Demand curves always slope downward.

What does this mean? It is a simple concept most kindergartners can explain: If the cost of something goes up, fewer people will want it and less of it will be sold. Simple, huh?

My professor was prescient. In the past 30 years, I have encountered dozens, perhaps hundreds of cases where somebody was convinced that a cost change won’t have an effect on volume.

I’ve seen it a lot in business planning. I worked for a consumer goods firm for a short time. One year, a product manager decided to take a price increase. The business plan she created showed that in the current year we had sold 1 million units at $3 for a revenue of $3 million. Her planning assumed a 10 percent price increase would increase revenue by $300K. Not! If the price goes to $3.30 the only guarantee I can think of is that we would sell less than 1 million units. Nevertheless, her plan got through.

I’ve seen public policy makers forget this simple concept as well. They will propose tax changes and then assume that the change won’t affect consumer behavior.

The error is most commonly made when people only consider price and not “cost” in a broader since. Cost involves price but is also comprised of other things, such as the value of your time, the inconvenience of traveling to make a purchase, etc. As Adam Smith said, the real price of something is the “toil and trouble of acquiring it.”

A good example of this happened earlier this year in the county I live in. Our county legislature decided against raising the legal smoking age from 18 to 21. A quote from my representative indicated that because surrounding counties sell tobacco to those 18 and older, raising the age to 21 in our county would not change smoking behavior because young smokers will simply drive elsewhere.

Wrong! Demand curves slope downward. Raising the age to 21 in our county most certainly will decrease tobacco use because we have raised the cost of obtaining cigarettes by making it more inconvenient. 18-21-year olds would now have to drive further to get tobacco. They might have to bug someone of legal age to buy them for them. They may need to risk buying while underage. This all increases the cost to them and they will buy less. It is okay if you are against raising the legal age but it is not okay to use flawed logic to get there.

It is fine to argue that raising the age won’t have a large effect, but arguing that it won’t have any effect at all ignores a basic economic tenet. Demand curves slope downward. Thinking otherwise would sort of be like trying to convince a physicist that gravity only exists in some cases.

To illustrate this point, look to CVS. In 2014, CVS decided to stop selling tobacco products. This increased the cost of buying cigarettes because it became a bit less convenient to find them. Although many felt that this wouldn’t do anything to overall smoking behavior (thus ignoring that demand curves slope downward), a recent study by CVS concluded that 95 million fewer packs of cigarettes were bought by smokers in an 8-month period studied. If we pro-rate that over the 5 years since CVS has stopped selling cigarettes, the implication is that as a result of CVS’s decision, about 3 billion fewer cigarettes have been smoked per year.

Without wading too deeply into a one of the hottest of hot-button political issues, I do hear things from the pro-gun lobby that clearly shows they don’t recognize that demand curves slope downward. I think it is legitimate to be against gun restrictions from a philosophical viewpoint (e.g. gun ownership is a citizen right, guaranteed in the constitution, etc.). But the pro-gun lobby often claims that restricting which weapons that can be sold, taxing them, making it more onerous to register them, etc. will have no effect on “bad guys” getting guns.

Of course it will. Raise the cost of something and people will do it less. I have no idea how to resolve the gun debate in the US, but I am 100% confident that if we make guns harder to obtain fewer guns will be obtained. By good guys and bad guys. Whether that is a good or bad thing depends on which side of the debate you are on.

This concept can influence behavior in unexpected ways. There are studies that show how frequently employees interact varies inversely with the geographic distance their desks are from one another. I noticed this first-hand. At one point, my office was moved literally about 30 feet down a hallway, further away from where the bulk of the people on my team sat. I noticed right away that I conversed with them about half as often as a result. Why? Because the cost for us to interact increased and our behavior changed. It became a bit more inconvenient to interact with them.

“Demand curves slope downward” can have a converse affect: lower the cost of something and people will buy more. The rise of online retail demonstrates this. Shopping online is so convenient and easy that consumers have moved to it quickly – because their cost of shopping has come down. However, in my experience you don’t see people making mistakes on this side of the argument. People seem to know that lowering cost increases volume. It is more that they often fail to see that increasing costs lowers volume.

So, 30 years later, I am going to send a link to this post to my former professor. He will be pleased that at least one of his students remembered his advice.

NOTE: Economic geeks will note that there are some cases where demand curves don’t slope downward. There are “Giffen goods” – items where consumers will buy more of when price goes up. In reality, it is rare to ever see a discussion of this outside of an Economics class.

Jeff Bezos is right about market research

In an annual shareholder letter, Amazon’s Jeff Bezos recently stated that market research isn’t helpful. That created some backlash among researchers, who reacted defensively to the comment.

For context, below is the text of Bezos’ comment:

No customer was asking for Echo. This was definitely us wandering. Market research doesn’t help. If you had gone to a customer in 2013 and said “Would you like a black, always-on cylinder in your kitchen about the size of a Pringles can that you can talk to and ask questions, that also turns on your lights and plays music?” I guarantee you they’d have looked at you strangely and said “No, thank you.”

This comment is reflective of someone who understands the role market research can play for new products as well as its limitations.

We have been saying for years that market research does a poor job of predicting the success of truly breakthrough products. What was the demand for television sets in the 1920’s and 1930’s before there was even content to broadcast or a way to broadcast it? Just a decade ago, did consumers know they wanted a smartphone they would carry around with them all day and constantly monitor? Henry Ford once said that if he had asked customers what they wanted they would have wanted faster horses and not cars.

In 2014, we wrote a post (Writing a Good Questionnaire is Just Like Brian Surgery) that touched on this issue. In short, consumer research works best when the consumer has a clear frame-of-reference from which to draw. New product studies on line extensions or easily understandable and relatable new ideas tend to be accurate. When the new product idea is harder to understand or is outside the consumer’s frame-of-reference research isn’t as predictive.

Research can sometimes provide the necessary frame-of-reference. We put a lot of effort to be sure that concept descriptions are understandable. We often go beyond words to do this and produce short videos instead of traditional concept statements. But even then, if the new product being tested is truly revolutionary the research will probably predict demand inaccurately. The good news is few new product ideas are actually breakthroughs – they are usually refinements on existing ideas.

Failure to provide a frame-of-reference or realize that one doesn’t exist leads to costly research errors. Because this error is not quantifiable (like a sample error) it gets little attention.

The mistake people are making when reacting to Bezos’ comment is they are viewing it as an indictment of market research in general. It is not. Research still works quite well for most new product forecasting studies. For new products, companies are often investing millions or tens of millions in development, production, and marketing. It usually makes sense to invest in market research to be confident these investments will pay off and to optimize the product.

It is just important to recognize that there are cases where respondents don’t have a good frame-of-reference and the research won’t accurately predict demand. Truly innovative ideas are where this is most likely to happen.

I’ve learned recently that this anti-research mentality pervades the companies in Silicon Valley. Rather than use a traditional marketing approach of identifying a need and then developing a product to fulfill the need, tech firms often concern themselves first with the technology. They develop a technology and then look for a market for it. This is a risky strategy and likely fails more than it succeeds, but the successes, like the Amazon Echo, can be massive.

I own an Amazon Echo. I bought it shortly after it was launched having little idea what it was or what it could do. Even now I am still not quite sure what it is capable of doing. It probably has a lot of potential that I can’t even conceive of. I think it is still the type of product that might not be improved much by market research, even today, when it has been on the market for years.

Is getting a driver’s license still a rite of passage for teens?

In the 80’s and 90’s, before the Millennial generation hit their teen years in force, we would use “driver’s license status” as a key classification variable in studies. Rather than split focus groups by age or grade in school, we would often place teens who had their license in one group and those who did not have their license yet in another group. Regardless of the topic of the group. We found that teens with licenses were more independent of their parents and more capable of making decisions without parental input. Drivers license obtention was often better predictor of consumer behavior than age.

Young people experience many rites of passages in a short period of time. These are experiences that signify a change in their development. They ride the school bus for the first time, get their first smartphone, enter high school, go to the prom, leave home to go to college, vote for the first time, etc. As marketers, we have always looked at these inflection points as times when consumer behavior shifts. The obtaining of a driver’s license is traditionally seen as a watershed moment as it signifies a new level of independence.

However, this wisdom no longer holds. Millennials, particularly second wave Millennials, are not as focused on obtaining drivers licenses as their Boomer and Xer parents were. Where I grew up, we couldn’t wait until our 16th birthday so we could get our learner’s permit. My classmates and I usually took our road tests at the first opportunity. Failing the road test was a traumatic experience, as it caused us to remain in our parents’ control for a few more months.

This is no longer the case. In 1983, 46% of America’s 16-year-olds had a driver’s license. That is now less than 25% currently. I was very surprised to notice that my children and their friends seemed to be in no particular rush to get their licenses. Many times, it was the parents that pushed the kids to take their road test, as the parents were tiring of chaperoning the kids from place to place.

There are likely things that have caused this change:

  • Today’s parents are highly protective of children. Parents no longer push their children to be as independent as quickly.
  • There are societal pressures. In most states, there are more stringent requirements in terms of driving experience to be able to take a road test and more restrictions on what a younger driver can do with his/her license. The license simply isn’t as valuable as it used to be.
  • Driving has peaked in the US. People are driving less frequently and fewer miles when they do. There has also been a movement of the population to urban areas which have more mass transit.
  • The decline of retail has played a part. Going to the mall was a common weekend activity for Xer teens. Now, staying home and shopping on Amazon is more common. Millennials never went to the mall to socialize.
  • Online entertainment options have proliferated. Movies and shows are readily streamed. Many teens fulfill a need for socialization via gaming, where they interact with their friends and make new ones. This need could only be met in person in the past.
  • Teens are working less so have less of a need to drive to work. Of course, this means they have less of their own money and that tethers them to their parents even longer.

There are likely many other causes. But the result is clear. Teens are getting licenses later and using them less than they did a generation ago.

As a result, researchers have lost a perfectly good measure! Obtaining a driver’s license is not as strong a rite of passage as it used to be.

We’ve been thinking about what might make a good alternative measure. What life event do young people experience that changes them in terms of granting their independence from parents? Leaving home and living independently for the first time would qualify but seems a bit late to be useful. There may be no clear marker signifying independence for Millennials, as they stay dependent on parents across a much wider time period than in the past. Or, perhaps we need to change our definition of independence.


Visit the Crux Research Website www.cruxresearch.com

Enter your email address to follow this blog and receive notifications of new posts by email.