VI. Cautions and Caveats in Forecasting
A. Psychological Biases to Forecasting
To a varying degree, the effectiveness of all of the forecasting methods is often
undermined by excessive optimism on the forecaster’s part, especially in new
product or new venture settings.
Forecasters often fall prey to what Dan Lovallo and Daniel Kahneman call
the planning fallacy, a tendency to make decisions based on delusional
optimism rather than on a rational weighing of possible gains and losses and
the probabilities thereof.
B. Common Sources of Error in Forecasting
Forecasters are subject to anchoring bias, where forecasts are perhaps
inappropriately “anchored” in recent historical figures even, though market
conditions have markedly changed, for better or worse.
Capacity constraints are sometimes misinterpreted as forecasts.
Another source of error in forecasting is incentive pay. Bonus plans can cause
managers to artificially inflate or deflate forecasts, whether intentionally or
otherwise.
o“Sandbagging”—setting the forecast or target at an easily achievable figure in
order to earn bonuses when that figure is beaten—is common.
Unstated but implicit assumptions can overstate a well-intentioned forecast.
Assumptions of awareness and distribution coverage at levels less than 100
percent, depending on the nature of the planned marketing program for the product,
should be applied to a forecast, using the chain ratio method.
C. Keys to Good Forecasting
There are two important keys to improve credibility and accuracy of a set of
forecasts of sales and market potential.
oMake explicit the assumptions on which the forecast is based.
oUse multiple methods. If the results of two or more forecasting methods
converge on similar results, that will build your and others’ confidence in
what the forecasts say.
Contingency plans should be developed to cope with the reality that ultimately
unfolds.
VII. Why Data? Why Marketing Research?
Obtaining market knowledge requires data.
Without relevant and timely data, market knowledge is incomplete and often ill-informed,
based perhaps on hunches or intuitions that may or may not be correct.
Without adequate market knowledge, marketing decisions are likely misguided.
VIII. Customer Relationship Management: Charting a Path toward Competitive
Advantage
There are four commonly used market knowledge systems on which companies rely to
keep pace with daily developments:
oInternal records regarding marketing performance (in terms of sales and the
effectiveness and efficiency of marketing programs)
oMarketing databases
oCompetitive intelligence systems
oSystems to organize client contact
Taken together, these systems lie at the heart of the systematic practice of customer
relationship management (CRM).
Effective use of CRM is likely to result in happier, higher-volume, more loyal customers.
A. Internal Records Systems
Marketers need internal records systems to track what is selling, how fast, in
which locations, to which customers etc.
Providing input on the design of such systems so that the right data are provided to
the right people at the right time is a critical marketing responsibility in any
company.
B. Marketing Databases Make CRM Possible
CRM has proved to be very successful in managing marketing campaigns and in
serving customers more effectively and more efficiently.
The purpose of CRM is to develop a unified and cohesive view of the customer
from every touch point within the company.
Databases created for CRM purposes typically capture information about most or
all of the following for each customer:
oTransactions
oInstances of customer contact
oCustomer demographics
oCustomer responses
Designing marketing databases that take effective advantage of customer data that
companies are in a position to collect requires that several major issues be
considered:
oThe cost of collecting the data
oThe economic benefits of using the data
oThe ability of the company to keep the data current in today’s mobile society
oThe rapid advances in technology that permit the data to be used to maximum
advantage
Building or accessing marketing databases is a small part of any effective CRM
effort. Implementing such an effort requires four key steps:
oGaining broad-based organizational support for creating and adopting a CRM
strategy
oForming a cross-functional CRM team with membership from all functions
that have customer contact
oConducting a needs analysis that identifies customer and business needs
oDeveloping a CRM strategy to guide implementation
One of the things that some CRM efforts make possible is segmenting markets
according to the lifetime value of customers, rather than by more traditional means.
Customer lifetime value (CLV) refers to the margins that a customer generates
over a lifetime less the cost of serving the customer.
The rapid rise in so-called two-sided markets—in which one set of customers who
pay little or nothing (for example, Google search users) are essential to attract a
completely different and more lucrative set of customers (advertisers who buy ads
that are delivered in response to Google searches)—has led to an even more vexing
challenge than the calculation of customer lifetime value in a conventional sense.
oThis challenge is to figure out the value of both kinds of customers:
Those who search (and are asked not to pay), in Google’s case
Those who pay, the advertisers
C. Why CRM Efforts Fail
Research by Bain & Co. suggests that there are four major pitfalls to watch out for:
oImplementing CRM without first developing a strategy
oPutting CRM in place without changing organizational structure and/or
processes
oAssuming that more CRM is better
oFailure to prioritize which customer relationships are most worth investing in
D. Client Contact Systems
One good starting point for developing CRM capabilities in companies having
limited resources is to put in place salesforce automation software.
oSuch software helps companies disseminate real-time product information to
salespeople to enable them to be more productive and more able to satisfy
customer needs.
oSuch software also allows companies to effectively capture customer
intelligence from salespeople, keep track of it for use on later sales calls, and
even transfer it to other salespeople in the event of a salesperson leaving the
company.
E. Competitive Intelligence Systems
Competitive intelligence (CI) is a systematic and ethical approach for gathering and
analyzing information about competitors’ activities and related business trends.
The critical questions that managers setting up a CI system should ask are:
oHow rapidly does the competitive climate in our industry change? How
important is it that we keep abreast of such changes?
oWhat are the objectives for CI in our company?
oWho are the best internal clients for CI? To whom should the CI effort report?
oWhat budget should be allocated to CI? Will it be staffed full or part time?
IX. Marketing Research: A Foundation for Marketing Decision Making
Marketing research task involves the design, collection, analysis, and reporting of
research intended to gather data pertinent to a particular marketing challenge or situation.
Marketing research is intended to address carefully defined marketing problems or
opportunities.
Some marketing problems commonly addressed through marketing research include
tracking customer satisfaction from unit to unit or year to year (tracking studies); testing
consumer responses to elements of marketing programs, such as prices or proposed
advertising campaigns; and assessing the likelihood that consumers will buy proposed new
products.
The marketing research is fraught with numerous opportunities for error. That is why it is
very important that all who play influential roles in setting strategy for their firms or use
marketing research results for decision making be well-informed and critical users of the
information that results from market research studies.
X. What Users of Marketing Research Should Ask
The informed and critical user of marketing research should ask the following questions,
ideally before implementing the research or if necessary subsequent to its completion, to
ensure that the research is unbiased and the results are trustworthy:
oWhat are the objectives of the research? Will the data to be collected meet those
objectives?
oAre the data sources appropriate? Is cheaper, faster secondary data used where
possible? Is qualitative research planned to ensure that quantitative research, if any, is
on target?
oAre the planned qualitative and/or quantitative research approaches suited to the
objectives of the research? Qualitative research is generally better for deep insights
into consumer behavior, while quantitative research is better for measurement of a
population’s attitudes and likely responses to products or marketing programs.
oIs the research designed well? Will questionnaire scales permit the measurement
necessary to meet the research objectives? Are the questions on a survey or in an
interview or focus group unbiased? Do the contact method and sampling plan entail
any known bias? Is the sample size large enough to meet the research objectives?
oAre the planned analyses appropriate? They should be specified before the research
is conducted.