Market research is essential to prevent writing a marketing strategy that will result in a company’s downfall.
There are many formats and templates out that outline how to structure market research. However, while these templates are very useful, performing market research is prone to errors, ranging from poor competitors analysis to cognitive bias that prevents delivering a report that disproves preconceived notions and turns new business endeavors into costly mistakes.
Market Research fundamentals
Before diving into the different pitfalls of market research, we have to lay down the foundations to frame these topics. Market research itself down to its essence is the gathering of information about customers, the market and assessing the product market fit. Research can extend to desk research such as gathering market and industry intelligence, including competitors, to surveying current and potential customers. Catherine Cote for Harvard Business School explains the goal of market research is to assess whether a product fits the customers wants and needs.
Market research is divided into two types of research, primary research, which is data collection based on customers or the target market. This data will allow to create a buyer persona that helps formulate the appropriate marketing communication, or depending on the results, adjust the product where necessary or decide to not pursue this endeavor. The latter might be disheartening to those who are responsible for the product or have come up with a new revenue opportunity. However, it’s better to discover a products’ poor market fear before launch day.
The secondary research, Cote continues, is retrieved from external sources such as industry reports, public databases or data published by other companies. Having done many such projects, it’s important to note that not all data is as readily available as one might expect. While weather patterns or traffic data is readily available, data related to credit card usage of certain age demographics in certain regions around the world, is much harder to come by. Sources might exist, but whether they are still relevant to the current or future market conditions can be debated.
A cohesive market research report will reveal not only the size of the potential target audience, but also the willingness to pay. This is crucial as there might be high interest in the product, but there’s no intrinsic motivation for customers to pay for it. This is especially true where free or cheaper alternatives are readily available or already used by the customers through competitors. Additionally, market research shouldn’t be regarded as a one-off project, but a continuous cycle. Ideally, market research is performed every few years. My recommendation would be to perform market research every five years and continue to track customer wants and needs annually through extensive surveys. This will ensure you keep track of developments among customers before competitors catch on.
Competitor Analysis
A competitor analysis is important to determine what products and services are being offered and developed in the space. In February 2009, author and former associate principal at McKinsey, Hugh Courtney, detailed how organizations can anticipate their competitors’ next move. The piece came at a time when the world was entering an economic meltdown. Those who lived through it would know how deep the recession hit and the companies that managed to live through it were put to the test. Courtney brings forward companies such as Boeing who were observing Airbus’s every move or Pfizer anticipating the launch of generic brands potentially eating away its market share.
In theory this sounds straightforward. However, while many companies are aware of movements in the market, rarely do they have the frameworks to anticipate them. Theories might be in place to test and adjust strategic plans, but without a clear definition of strategic options and competitor objectives, they are of little value, Courtney warned. Only few companies possess the internal know-how to anticipate competitors’ actions and align accordingly. Being able to clearly picture and formulate a competitor’s next move can act as a predictor for the next move.
In order to predict strategic redirection at competitors, Courtney points out, business leaders must assess a competitor at two levels, organizational and individual. At an organizational level, a review should be made about how the company will anticipate changing market dynamics and how its offering will be adjusted to meet customer demands. We witnessed this play out with Boeing so frightened by Airbus’s short-medium haul product offering, that it scraped together a plane that, in hindsight, turned out to become the company’s largest PR-disaster.
Boeing could’ve prevented this by better observing changing dynamics in the market. Low-cost airlines were aggressively reshaping the market, where cheap short flights became the primary revenue model. Instead of the hub model where wide-body jets carried hundreds of people at a time to fixed, large hubs across the world. Boeing executives meanwhile were too focussed on generating shareholder returns by optimizing operations, rather than anticipating the needs of airlines to cater to a new type of traveler.
Airbus meanwhile could’ve simply looked at the decision makers, an individual assessment of a company, and determined that Boeing was far too concerned with shareholder satisfaction than adjusting its product offering. Boeing had dominated the space with its 737 for decades, becoming complacent, with Airbus being forced to innovate under harsh economic conditions. Courtney notes that by having a clear view of the decision makers at competitors, divestment strategies can be predicted. Sales representatives often offer a glimpse at the various offerings and a roadmap.
An important caveat I would like to add is, while it’s important to be vigilant about what is going on in your market on a regular basis, one must not lose sight of the company’s core values and value proposition. Companies might operate in the same space, that doesn’t mean a competitor has a crystal ball that predicts the future. Rivals might miscalculate demand or macro-economic developments too, Being too focussed on copying or anticipating can lead to poor decisions. A competitor’s actions therefore, must be weighed against market and economic developments to prevent imminent failure.
Competitor analysis frameworks
There are several frameworks available to accurately assess a business against competitors and should be used to summarize the different forces that act on a product or service.One of the most popular frameworks is the SWOT analysis, that reviews the business along its strengths, weaknesses, opportunities and threats. On the surface, the framework looks simple, but its effectiveness is as strong as its underlying research. Only through extensive data collection, can a SWOT analysis provide the necessary insights.
Laurence Minsky and David Aron warned that while the tool is widely used, there are common pitfalls that render the analysis inadequate. Both noted that researchers should start with the threats and opportunities and then plot the internal strengths and weaknesses. Based on this assessment, recommendations are better attuned to external factors. Porter’s Five Forces, named after Harvard Business School professor, Michael Porter, is equally well established among business professionals.
The five forces explore the business across the macro-economic environment, looking at the number of competitors in the market, the potential growth, similar offerings, the exit barriers and the fixed costs that come along when operating in the market. The framework looks at how easy new competitors can enter the market, how suppliers can influence the market, whether enough customers exist and how sensitive they are to price fluctuations and whether the product can be substituted. In essence Porter’s model is an addition to the SWOT analysis as it extends the threats and opportunities identified earlier.
The model has been around since the late 1970s, but is still applicable today. The Harvard Business School brings forward several examples of how the axes used in the framework exert power on a business. In the airline industry, commercial airlines have few options to deliver substantially different experiences through which they can differentiate themselves from their competitors. Loyalty programs and service are the only axes commercial airlines can utilize to create a better experience. However, as buyers are price conscious with no switching costs, they can immediately switch to a competitor.
We have witnessed this phenomenon in the early 2000s when Apple released its iPhone, which sent shockwaves through the mobile phone industry. Once large players such as Nokia, Sony and Blackberry saw customers switch en masse to Apple, or alternatively, to Android powered devices. Buyers could easily switch to Apple’s device, which was superior to competitors. While the price point of the iPhone was far beyond any budget handheld device, its appeal was strong enough to attract countless new customers, who ditched their clunky, quickly outdated, mobile phones.
Heavy competition might exist within the commercial aviation market, there’s little to be feared that customers will switch to a substitute such as a bus or vehicle. Substitutes are a real threat for short haul carriers, but for long-haul or transatlantic flights, commercial airlines have little to fear only than their direct competitors. By using the Porter Five Forces model, market researchers and marketers at commercial airlines will be able to classify the different macroeconomic threats and opportunities quickly in greater detail than a SWOT analysis could.
Industry life cycle
A Strategic Group Map is another tool to visualize competitors with similar operations and market shares. As with many models, they work complementary to one another. In tandem they can reveal blindspots or advantages not captured through earlier exercises. Just like the SWOT analysis, the Strategic Group Map reveals the strengths and weaknesses of a company, the competitive advantages and opportunities. The Strategic Group Map can be separated into three separate types; the industry life cycle model, macro-environment and the Porter Five Forces model, with the latter having the option to be used separately.
The Industry Life Cycle will be familiar to many marketing and business professionals. This framework classifies an industry into four distinct phases; introduction, growth, maturity and decline. Assessing the phase of the industry will plot your company’s offering against future potential and either define a growth plan or an exit strategy. A recent example that allows for easy plotting is the tablet market. In January 2010, Apple unveiled the first iPad. A revolutionary device that brought entertainment and productivity in a lightweight package.
Shortly after the launch of the iPad, the tablet market entered its exponential growth phase. In the second quarter of 2010, global tablet shipments were a modest 3.5 million units. Samsung saw the potential of the tablet market and unveiled its first Android powered galaxy tab in September 2010, marking the beginning of an intense rivalry among tech companies to capitalize on this newly created device segment. Just a year later, in the second quarter of 2011, shipments had already reached 15.04 million units. The market started to rapidly accelerate as new players entered the market and the table was reaching mass adoption.
In the last quarter of 2012, global tablet shipments reached a record-breaking 60 million units. While shipment decreased for the following quarters, the market peaked in the last quarter of 2013, three years after the unveiling of the original iPad. Worldwide tablet shipments reached an all-time high of 78.6 million units. After this run-up period, the tablet market started to shrink. The market still saw moments of increased demand, but it never reached the volumes achieved in 2013.
The tablet market was seeing a rapid slow down due to multiple factors. In February 2023, analyst at Canalys, Himani Mukka, said tablets still enjoyed modest growth thanks to product innovations. But steep prices hampered growth. As an extension to Mukka’s observations, the tablet enjoyed the novelty factor during its introduction, with the general public being intrigued by this technology. As the use cases started to narrow and the leaps in technological innovation started to slow down, interest, and consequently demand, started to retract.
Actionable insights
Data collection is but one part of the equation. In the era of big data and readily available research, drawing sound conclusions from vast amounts of data into actionable insights remains ever more challenging. In September 2023, McKinsey spoke with Professor at Washington University’s Olin Business School in St. Louis, John Horn, about how business leaders can better predict a competitors’ next move. Horn points out that while many companies are well equipped to collect competitor intelligence, oftentimes they fail to turn into actionable insights.
Horn continues by observing that many of these clients say their competitors are irrational. Where they fail, he notes, is their inability to place themselves in their competitors shoes. There are several reasons as to why business leaders fail to view decisions made by their competitors. One being cognitive bias, which will be touched upon later in this piece. Preconceived notions convince us that the actions taken by competitors are inherently wrong, therefore the data collected serves only to confirm our decisions. Decisions which in our mind are the correct ones.
This effect is reinforced by seniority, Horn adds. Through experience, power and status, emphatic ability is reduced. Promotions are confirmations that our decisions have been correct. Furthermore, there’s little evidence that companies and their leadership are indeed irrational and therefore hard to predict. In simulated instances, reflection on decisions made within the company itself, revealed that there was no irrational decision making, grounding executives and convincing them that irrationality wasn’t present. Removing cognitive bias is the first step to remove objective observations made at competitors.
Cognitive bias
When conducting market research it’s crucial to mitigate cognitive bias, which can influence decision making and lead to poor results. Cognitive bias isn’t limited to certain individuals. Every person has preset notions about certain subjects. In order to deliver unbiased research, one must be mindful to not base findings on data or research that confirms one’s opinions. Research should be approached from multiple angles to highlight as much as possible. Cognitive bias isn’t limited to our private lives, but is equally present in professional settings, where past work experiences, shapes opinions about future outcomes.
Executives at CNN were eager to get in on the streaming hype, as every media enterprise started to launch its own service. CNN had a broad audience, great anchors and a vast content library. The cards were in the network’s favor and the formula had worked on regular cable before. However, executives overestimated the potential demand for a streaming service solely revolving around news. News which could be easily consumed elsewhere. The market was also rapidly saturating, with consumers now carefully assessing which service to keep and which to stop. CNN+ became an instant failure and a testament as to how cognitive bias can cloud judgment.
Nintendo meanwhile experienced a major flop with the Nintendo Wii U. The toy maker wanted to create a product that could compete with Sony’s Playstation and Microsoft’s Xbox, while staying true to the Wii target audience. This resulted in a product that didn’t appeal to previous customers of the Wii, nor was it powerful enough to lure in dedicated gamers away from its competitors. Furthermore, Nintendo wanted to tap into the tablet market, which saw massive growth. The result was an overpriced and clunky tablet controller, which made the console too expensive for the casual audience.
Presenting market research
Market research reports include vast amounts of information, analysis and commentary. This makes presenting the analysis a daunting task. In order to assess how the information should be presented, we must envision the setting. If the research is part of a marketing strategy report or written document, having a written piece with appropriate graphs and tables is sufficient for easy integration within a larger document. Personally, I’ve always gravitated toward expansive reports.
However, while this is a great reference document for colleagues and stakeholders, it’s not well suited when presenting to managers and executives. Hence, I’d recommend you take the storytelling approach to frame the findings in a compelling way. Storytelling is far more effective to deliver results and promote change rather than a cold slidedeck sprinkled with graphs and comments. While these elements are important to make the results digestible, one shouldn’t lean solely on research findings.
Market research should be firmly grounded in the company’s needs and objectives, ensuring that the research has been conducted in the first place. We can reference the case for Boeing once more. In this hypothetical, executives at Boeing would’ve noticed shifts in customer demands. Airlines were seeing shifts in consumer travel behavior as low-cost airlines started to cater cheaper, short-haul flights. Airbus saw this potential and started to develop efficient aircrafts that would allow low-cost carriers to remain competitive, while delivering a steady network to its customers. Networks that could rival those of flag-carrier commercial airlines. Meanwhile, flag-carriers could emulate the low-cost model through smaller, efficient airplanes.
Through research Boeing would’ve been able to spot changing demand and a need for a new generation of narrow-body airplanes. Marketers at Boeing could’ve framed their research based on these observations, recommending that Boeing could maintain its market share by developing an evolution on its popular 737, which was a long time favorite, but had become outdated for the modern commercial airline market. Market researchers in turn present the revenue potential, as customers were already well established with Boeing’s offering.
In hindsight the opposite has happened, with Boeing facing a PR-disaster as it was blindsided by Airbus’s rapid growth. Admittedly, it remains speculation whether executives were truly caught off guard, but the evidence leans toward confirming this theory. Boeing is one of many examples where market research, including customer surveys, would’ve been highly beneficial to developing a new strategy befitting a new way of flying. This ideal customer in turn could’ve been envisioned through a buyer-persona. A buyer-persona for low-cost carriers and flag-carriers that offer short and low-haul flights.
Market research importance
Market research is one of the most powerful tools in a marketer’s arsenal. No amount of money or drive can save a product or service that doesn’t fit the needs and wants of its primary customer. Market research should be part of every marketing strategy and every time a new solution is envisioned, new market research should be conducted to prevent costly mistakes. Mistakes so costly, they can mark the end of an entire business segment, as seen with companies like Sony and its smartphone business. Market research can act as the canary in a coal mine. Reveal blind spots that could jeopardize the business. Alternatively, strong research can reveal new growth opportunities.
