Market Experiments

Unlike consumer clinics, which are conducted under strict laboratory conditions, market experiments are conducted in the actual marketplace. There are many different ways of performing market experiments. One method is to select several markets with similar socioeconomic characteristics, and change the commodity price in some markets or stores, packaging in other markets or stores, and the amount and type of promotion in still other markets or stores, and record the different responses (purchases) of consumers in the different markets. By using census data or surveys for various markets, a firm can also determine the effect of age, sex, level of education, income, family size, etc., on the demand for the commodity. Alternatively, the firm could change, one at a time, each of the determinants of demand under its control in a particular market over time and record consumers’ responses.

The advantage of market experiments is that they can be conducted on a large scale to ensure the validity of the results and consumers are not aware that they are part of an experiment. Market experiments also have serious disadvantages, however. One of these is that in order to keep costs down, the experiment is likely to be conducted on too limited a scale and over a fairly short period of time, so that inferences about the entire market and for a more extended period of time are questionable. Extraneous occurrences, such as a strike or unusually bad weather, may seriously bias the results in uncontrolled experiments. Competitors could try to sabotage the experiment by also changing prices and other determinants of demand under their control. They could also monitor the experiment and gain very useful information that the firm would prefer not to disclose. Finally, a firm may permanently lose customers in the process of raising prices in the market where it is experimenting with a high price.

Despite these shortcomings, market experiments may be very useful to a firm in determining its best pricing strategy and in testing different packaging, promotional campaigns, and product qualities. Market experiments are particularly useful in the process of introducing a different product, where no other data exist. They may also be very useful in verifying the results of the other statistical techniques used to estimate demand and in providing some of the data required for there other statistical techniques of demand estimation. 

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Consumer Surveys and Observational Research

Consumer Surveys involve questioning a sample of consumers about how they would respond to particular changes in the price of the commodity, incomes, the price of related commodities, advertising expenditures, credit incentives, and other determinants of demand. These surveys can be conducted by simply stopping and questioning people at a shopping center or by administering sophisticated questionnaires to a carefully constructed representative sample of consumers by trained interviewers.

In theory, consumer questionnaires can provide a great deal of useful information to the firm. In fact, they are often very biased because consumers are either unable or unwilling to provide accurate answers. For example, do you know how much your monthly beer consumption would change if the price of beer rose by 10 cents per 12-oz can or bottle? If the price of sodas fell by 5 cents? If your income rose by 20 percent? If a beer producer doubled its advertising expenditures? If the alcoholic content of beer were reduced by 1 percentage point? Even if you tried to answer these questions as accurately as possible, your reaction might be entirely different if actually faced with any of the above situations. Sometimes consumers provide a response that they deem more socially acceptable rather than disclose their true preferences. For example, no one would like to admit that he or she drinks 200 beers per month. Depending on the size of the sample and the elaborateness of the analysis, consumer surveys can also be expensive.

Because of the shortcomings of consumer surveys, many firms are supplementing or supplanting consumer surveys with observational research. This refers to the gathering of information on consumer preferences by watching them buying and using products. For example, observational research has led some automakers to conclude that many people think of their cars as art objects that are on display whenever they drive them. Observational research has also shown that consumer prefer to take several cold medicines, not just one. Observational research relies on product scanners which are increasingly found in stores and on people meters in homes. These make it possible for a company to learn overnight how a wide variety of products sell, the effectiveness of commercials, as well as television viewing patterns. Scanners and people meters, however, raise legal questions about privacy.

Observational research does not, however, render consumer surveys useless. Sometimes consumer surveys are the only way to obtain information about possible consumers’ responses. For example, If a firm is thinking of introducing a new product or changing the quality of an existing one, the only way that the firm can test consumer’s reactions is to directly ask them since no other data are available. From the survey, the researcher then typically tries to determine the demographic characteristics (age, sex, education, income, family size) of consumers who are most likely to purchase the product. The same may be true in detecting changes in consumer tastes and preferences and in determining consumers’ expectations about future prices and business conditions. Consumer surveys can also be useful in detecting consumers’ awareness of an advertising campaign by the firm. Furthermore, if the survey shows that consumers are unaware of price differences between the firm’s product and competitive products, this may be a good indication that the demand for the firm’s product is price inelastic. 

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Marketing Research Approaches to Demand Estimation

Marketing research is the process that links the consumers, customers, and end users to the marketer through information — information used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process.

Researching your market helps you target your ideal customer, identify new market opportunities and improve your sales performance. Successful businesses make regular market research the foundation of their marketing and sales planning. You can develop strong marketing strategies based on what you find out about your products and services, your customers, your competitors, your industry and the challenges in your marketplace.

Market research can also help you identify areas of your business that could be updated or changed. It's important to clearly define your market research goals so that you can give yourself the best chance of finding accurate and useful results.

The result of marketing result can be used for some business or sales planning, one of them is to demand estimation. Marketing research approaches is used as a method of estimating demand. The most important of these are consumer surveys, consumer clinics, and market experiments. I will explain them in different posts.

To learn more about these methods click the title below:

·      Consumer Surveys and Observational Research

·      Consumer Clinics

·      Market Experiments

I briefly examine these methods and point out their advantages and disadvantages and the conditions under which they might be useful to managers and economists. 

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