The following case history in which I was very deeply involved vividly illustrates how a client’s internal factors can thwart the results of valid research. Individuals involved in sales and marketing tend to be positive types. They look for the good things about the products and services they sell while minimizing shortcomings of those same products and services. These traits are necessary if they are to be successful in their jobs.
In many consumer-oriented companies, sales and marketing personnel have become accustomed to using marketing research to objectively determine the positive/negative characteristics of their products and services. The cost of introducing a new product has become so expensive that many companies will not introduce a product without some type of evaluation by the marketing research staff. The researchers, in turn, feel confident that the numbers they present as part of their report will be accepted regardless of whether the report is positive or negative.
Not fully accepted
Within some industrial companies the credibility of the marketing research department has not been fully accepted. Marketing and sales functions are sometimes combined. Individuals holding key decision making positions in these areas may believe their personal experiences provide a better gauge of the marketplace than can researchers. Results of this approach may prove to be very costly.
During my career I was contacted by a major corporation’s director of research to conduct six focus groups. The company wanted me to use these focus groups to gain an insight into which features of a new product would be most desirable to prospective customers. The meetings had to be held within a short period of time because the product was scheduled to be introduced within six to nine months.
Prior to initiating the groups I met with personnel assigned to market the product. They explained that the product had the potential of revolutionizing the industry being served. It would do everything people in the industry had been asking for and, although it was considerably more expensive than the products it was to replace, they already had orders from some of the customers who had tested it previously. Further, they told me that the product had been in the research and development stage for five years and that company personnel believed this product might increase company sales by 50% within three years. What they did not tell was that I was the first outsider called in to do any marketing research. I was the only researcher involved before the product reached the market.
At this point I assumed the project would be fairly standard. After the sessions with the company personnel, I prepared an outline which was accepted with few changes. It was determined that a
research analyst and the product manager would accompany me on the assignment.
Arrangements were made to conduct six meetings within a one week period.
The first meeting ran smoothly. Nine individuals who attended provided excellent input. Each provided some personal and operational background. Discussion then moved to the present products available and their strengths/weaknesses. Next the participants described the characteristics of the perfect product. Finally, I provided a description of the new product which was to be introduced shortly. Before I had had an opportunity to mention the probable price everyone in attendance said that they would switch to the new product. One man even went so far as to say, “Even if this product costs me 10% more I will make an entire shift immediately to this product.”
Ten times more expensive
What these people did not know was that the new product was not going to cost 10% more than existing products but approximately 1,000% (ten times) more. I brought up cost figures toward the end of the meeting but they were brushed aside by the participants, who told me that I must be mistaken. Since we had already spent more than two hours in discussion I decided not to pursue the matter further.
After the meeting I raised the pricing problem with the analyst and product manager. The product manager did not accept the comments made and said the price would not be a barrier once the product reached the market. As proof, he cited the orders which had been received from those prospects who had seen the product during the development stage.
Nonetheless, I decided to spend a greater portion of the future meetings discussing how people in this industry saw the new product affecting their business and the actual return they would receive from it. I introduced the price earlier in the product description so that participants could have a proper perspective as to cost/benefit. We spent as much as 25% of the subsequent meetings on cost aspects.
After each meeting the analyst, product manager and I reviewed what had been said and compared it with previous sessions. In total, the responses had been consistent. The meetings had met the objectives of determining which of the new product’s characteristics would have the greatest positive impact on prospective buyers. But also after each meeting there would be disagreement as to the negative effect the price was going to have on potential sales. The product manager continued to take the position that the impact would be minimal while I stressed the downside and used comments from participants to buttress my point. The analyst listened but did not enter into the discussion.
The sixth meeting was held on a Thursday evening. It was agreed that I would have my report ready to present in two weeks. As was my custom I had listened to the tapes of each meeting immediately after each session, making notes as I went along. Thus the outline for the report was actually done by the time I had arrived back at my office.
The pricing problem continued to concern me. I was not convinced that a ten-fold increase could, or would, be accepted by potential customers. Further, I was convinced that the negative comments made by participants regarding their inability to afford the higher cost was based on true economics and not offered to induce the manufacturer to reduce the price.
Secondary sources
Fortunately, there was considerable data available from secondary sources, both industry and government, which I could use to determine whether the participants were providing me with accurate operational information. In particular I wanted to investigate the cash flow situation since it was necessary that it be sufficient to support the large initial investment necessary for the new product.
The data from the secondary data sources strongly supported the statements made by the focus group participants. Even in the best of economic times one would be hard pressed to pencil in an adequate return. And because of the relatively high initial investment anything less could prove disastrous. I felt strongly that my initial concern about the price being too high was justified.
My report was completed on time and I submitted an advance copy to the marketing research department. Within a day after its delivery I received a call from the analyst who questioned me regarding the conclusions I had reached. However, he did not dispute them. Rather he indicated concern and said he wanted to make certain that he understood what I had written.
The day of the presentation arrived and I arrived one-half hour early. After a short session with the research department manager and analyst regarding the presentation format we proceeded to the area where I was to present the results. It was a large room with a stage at the front.
The room seated 150 people comfortably. At meeting-time, the room was two-thirds full. It was the largest group to whom I ever gave a custom research presentation.
The research manager began the meeting by providing background on the specific project and explaining the objectives of the study. Next, the analyst provided reasons for selecting the various meeting locations and the demographics of those selected to attend the focus group sessions.
To start the presentation on a positive note, I informed the audience that we had met the objectives of the study. I then described the reaction of the focus group participants to the various features of the new product and listed specific ones which created the greatest positive reaction and would be most likely to cause prospects to obtain more information regarding the product.
Finally, I discussed the possible effect of the proposed price on sales. It was left to the end because I knew it would be controversial. But I also wanted to spend the remainder of the meeting discussing it, knowing the other elements had received sufficient attention.
First, I explained the comments made by participants. Second, I presented the information from the secondary data sources to provide support and credibility to my comments. I felt I was able to show rather conclusively that the participants would react in an actual buying situation as they said they would during the meetings. Emotionally, they liked the product’s characteristics but there was no way they could justify it economically. Price was going to be the major obstacle my client had to overcome and I was not convinced that the product’s strengths would overcome that problem. I told the audience that they should do specific pricing research to determine the optimal price. My research only showed the price was too high but not by how much.
My presentation over, I prepared myself for questions. I was surprised when there was little immediate reaction to my comments about price. The initial discussion related to the physical characteristics of the product. Members in the audience indicated this portion of the research was consistent with in-house observations.
Finally, members of the audience began to question my conclusions regarding the price of the product. One person from the development group said that the R&D costs already incurred required a price substantially higher than the products presently on the market. A representative from the production department explained that there was no possibility of making any substantial reductions in the manufacturing process. Others, representing various internal groups also stated that the suggested price was necessary if the product was going to be introduced by the company.
Difficult position
I found my position to be rather difficult. I was convinced if the price was too high it did not make any difference what R&D costs were, or that the manufacturing processes required a price much higher than anything on the market at that time. I only knew that the suggested price would mean that the product would not capture a substantial market share.
The attitude of the company’s management team was summarized by the division marketing director who concluded the meeting by stating, “Look here. There is no way we can go to our company’s board of directors and tell them that we are going to introduce this product at a substantially lower price than the one we have used to develop our marketing plan. I believe the gentleman making the presentation is dead wrong about the price. Thus we will continue using the pricing assumptions which were approved earlier.”
At that point the meeting adjourned. I left with the research department members. The research department manager had me come into his office where he told me that he agreed with my concern regarding the price. However, he did not believe he could or should make any comment. Therefore, he would “bury” my report because the product team did not want it to be leaked to corporate management. My suggestion that a separate pricing study be conducted would be ignored and the product would be introduced according to the plan approved prior to my focus group sessions. As far as the company was concerned my groups had been a waste of money.
It was unfortunate that marketing research department personnel were so intimidated by members of the marketing and product staff that they were reluctant to express their concerns regarding the proposed price. Doing so might have made a greater impact, as insiders, than I create. It would have meant taking risks but they would not have been unnecessary ones. Certainly, it would have provided the researchers within that organization an opportunity to more fully involve themselves in the decision-making process and become more creditable.
The company introduced the new product with a great fanfare. More than 60 salespeople were hired and a corresponding number of support personnel brought on board. When early sales did not meet expectations the company introduced a sales financing program. When that failed to work, other marketing methods were tried. The product struggled along for three or four years failing to achieve a substantial market share. Finally the product was quietly pulled off the market, ending what was undoubtedly a disappointing and losing marketing effort. However, as this case history proves, research can predict future behavior.