III. Cases
Good Belly (1-429-252), University of Michigan, 2012. (Using regression analysis
for marketing decisions.)
Nils Baker (QA-0793), Darden Business Publishing, University of Virginia, 2012.
Pilgrim Bank (A) (9-602-104), Harvard Business School, 2003.
Teaching Note (5-602-131).
Reyem Affiar (9-895-009), Harvard Business School, 1995.
Teaching Note (5-895-022).
Nopane Advertising Strategy (9-893-005), Harvard Business School, 1993.
Colonial Broadcasting Company (9-894-011), Harvard Business School, 1993.
Teaching Note (5-896-040).
Harmon Foods Inc (9-171-248), Harvard Business School, 1994.
Forecasting the Adoption of a New Product (9-505-062), Harvard Business School,
2005.
Tong Yang’s Cement (B): Demand Forecasting and Globalization (GS14B),
Stanford Business School, 2004. (Available from Harvard Business School
Publishing.)
Wal-Mart Neighborhood Markets (9-503-034), Harvard Business School, 2003.
GuestFirst Hotel (A) and (B) (9-602-099 and 9-602-111), Harvard Business
School, 2003.
Building a Logic of Competition (9-798-072), Harvard Business School, 1999.
Teaching Note (9-798-073). (This case asks students 30 questions about important
macroeconomic and business trends and underscores popular misperceptions.)
Forecasting with Regression Analysis (9-894-007), Harvard Business School,
1996.
Science Technology Co. – 1985 (9-289-040), Harvard Business School, 1991.
Teaching Note (5-292-063)
Additional Applications and Case Studies
We provide three additional applications. The first article underscores the new
challenges and opportunities in consumer marketing. The second presents a classic
example of the power of market surveys. The third calls for a mining company to
make crucial forecasts of demand for the resource it produces.
How the Digital Age Is Rewriting
the Rule Book on Consumer Behavior
Itamar Simonson and Emanuel Rosen
Stanford Business Rethink, February 4, 2014
In 2007, 10,000 people around the globe were asked about portable digital devices.
It was part of a study conducted by the global media company Universal McCann.
One of the hottest topics at the time was the first iPhone, which was announced but
hadn’t yet been released. Once researchers tallied the results, they reached an
interesting conclusion: Products like the iPhone are desired by consumers in
countries such as Mexico or India, but not in affluent countries. The study stated:
“There is no real need for a convergent product in the U.S., Germany and Japan,”
places where, one researcher later theorized, users would not be motivated to
replace their existing digital cameras, cellphones and MP3 players with one device
that did everything.
There’s a growing feeling that something is not working with market research,
where billions are spent every year but results are mixed at best. Some of the
problems relate to the basic challenge of using research to predict what consumers
will want (especially with respect to products that are radically different). But
marketers face one additional key problem: Study participants typically indicate
preferences without first checking other information sources — yet this is very
different from the way people shop for many products today.
In the Universal McCann study, for example, people were asked how much
they agree with the statement, “I like the idea of having one portable device to
fulfill all my needs.” Indeed, there was a significant difference between the
percentage of people who completely agreed with this statement in Mexico (79
percent) and in the United States (31 percent). So, in theory, people in the United
States were much less excited about a phone that’s also a camera and a music
player.
But it was a different story when people got closer to making a decision. They
heard about the iPhone in the media, where it was declared a revolutionary device,
and read blogs and reviews from real users. As iPhones started rolling into the
marketplace, the idea of “having one portable device to fulfill all my needs” was
replaced by actual reports from users.
It’s easy to blame the market research firm for this, but this is not our point. We
are trying to explain the inherent difficulties in assessing consumers’ reaction in
this new era. First, more decisions today are impacted by what we call O sources of
information — “Other” information sources, such as user reviews, friend and
expert opinions, price comparison tools, and emerging technologies or sources —
whereas market research measures P sources — “Prior” preferences, beliefs and
experiences. But let’s go beyond that: As we discussed, consumers have limited
insight into their real preferences. This is especially true with respect to products
that are radically different. Universal McCann correctly reported what it found.
What market researchers often underestimate, though, is the degree to which
consumers have difficulty imagining or anticipating a new and very different
reality. What makes the task of a market research firm even trickier is that just as
consumers’ expectations may be wrong (as was the case with the iPhone), there are
many cases where industry expectations about what consumers will buy are wrong.
Not to mention that O-sourced information is often much more dynamic, so
even if a researcher were trying to somehow account for the present effect of O,
that may become largely irrelevant and out of date by the time actual purchase
decisions are made. Also, beyond the unpredictability of O’s influence, decisions
made under the influence of O are much “noisier” than hypothetical decisions
made by an individual consumer on her own when completing a questionnaire.
While a limited set of studied features might be reasonably representative of the
factors that an individual consumer will consider, a larger set of reviewers and
information sources introduces various unpredictable factors (for example,
“coolness,” popularity, highlighting of seemingly insignificant features) that will
be difficult to capture in traditional measurement.
The noise and hard-to-anticipate information sources similarly limit the
usefulness of other common research techniques such as brand equity measures or
pricing studies. While predicting individual decisions that are made in isolation is
not a simple task, predicting the joint evaluations of many consumers and the
influences of other information sources is likely to be an order of magnitude more
difficult.
Indeed, trying to predict where things are going has become more challenging.
While traditional consumer research can still tell a marketer if their next toothpaste
will do better with purple or black stripes, it is not of great help for more radical,
unfamiliar changes. There is no effective way to use market research to predict
consumer reaction to major changes. When assessing new concepts, consumers
tend to be locked into what they are used to and believe today, which makes them
less receptive to very different concepts and more receptive to small improvements
over the current state. Similarly, experts who try to predict the success or failure of
radically new products are unlikely to be much more accurate than consumers.
(Among other things, experts have famously made bad predictions regarding the
success of the telephone, the Internet and television.) What marketers are often left
with is trying to quickly figure out where things are going and what consumers and
competitors appear to follow. And then try to offer a better solution. Instead of
predicting vague consumer preferences (which may change anyway when it’s time
to buy), these days one of the few things a marketer can do is follow O and play
along to make the best of a situation they no longer control.
The current environment does not mean the end of market research, just a shift
in focus with some silver linings. We expect that future market research will focus
more on tracking and responding to consumers’ decisions as they occur, and less
on long-term preference forecasting. Instead of measuring individual consumers’
preferences, expectations, satisfaction and loyalty, marketers should systematically
track the readily available public information on review sites, user forums and
other social media.
Courtyard by Marriott
A classic example of the consumer survey method is illustrated by the design of the
hotel chain, Courtyard by Marriott.1 Marriott Corporation undertook extensive
market research before establishing (and subsequently introducing nationwide) its
new hotel design: a small, quiet, informal, high-value hotel attractive to
price-sensitive business and vacation travelers. The company surveyed over 600
consumers in four cities, paying people to come to a central location and complete
a survey concerning some 50 hotel attributes related to room design, food, services,
leisure activities, security, hotel location, price, and so on. Table 1, reproduced
from the study, summarizes the alternatives subjects faced. Marriott market
researchers designed the survey to check and cross-check subjects’ responses. For
instance, after asking subjects to evaluate individual hotel features at given prices,
they then asked subjects to reevaluate the total hotel package they had selected,
indicating whether they found it attractive at the implied price or whether it could
be improved further.
According to the survey results, respondents clearly preferred a type of hotel
not then offered in the marketplace. Using information from the survey, Marriott
estimated price and cross-price elasticities of demand with respect to major
competitors, as well as expected market shares under different (what-if)
assumptions. It turned out that the “optimal” hotel design differed significantly
from what management had originally envisioned (a “smaller” Marriott offering
features similar to the trademark hotel). The new hotel has attracted so many
customers that now there are over 900 locations in over 36 countries. Predictably,
at least five “clone” chains have been opened by other hotel groups.
1A discussion and analysis of this marketing study appears in J. Wind et al., “Courtyard by Marriott:
Designing a Hotel Facility with Consumer-Based Marketing Models,” Interfaces 19 (1989): 25-47.
Table 1. Survey Results
External Factors Entertainment/rental Sink Location Fast food or coffee
Building shape None In bath only shop and good
L-shaped w/landscape Rental cassettes/ In separate area restaurant
Outdoor courtyard in room Atari In bath and separate Free continental
Landscaping Rental cassettes/ Bathroom features None
Minimal stereo cassette None Continental included
Moderate playing in room Shower massage in room rate
Elaborate Rental movies Whirlpool (Jacuzzi) Room service
Pool type in-room BetaMax Steam bath None
No pool Size Amenities Phone-in order/
Rectangular shape Small (standard) Small bar soap guest to pick up
Free-form shape Slightly larger (1 foot) Large soap/ Room service,
Indoor/outdoor Much larger (2 feet) shampoo/shoeshine limited menu
Pool location Small suite (2 rooms) Large soap/bath gel/ Room service,
In courtyard Large suite (2 rooms) shower cap/ full menu
Not in courtyard Quality of decor sewing kit Store
Corridor/view in standard room) Above items + No food in store
Outside access/ Budget motel decor toothpaste, deodor- Snack items
restricted view Old Holiday Inn decor ant, mouthwash Snacks, refrigerated
Enclosed access/ New Holiday Inn decor Food items, wine, beer,
unrestricted view/ New Hilton decor Restaurant in hotel liquor
balcony or window New Hyatt decor None (coffee shop Above items and
Hotel size Heating and cooling next door) gourmet food items
Small (125 rooms, Wall unit full control Restaurant/Lounge Vending service
2 stories) Wall unit soundproof combo, limited menu None
Large (600 rooms, full control. Coffee shop, Soft-drink machine
12 stories) Central H or C full menu only
Rooms (seasonal) Full-service restaurant, Soft-drink and
Entertainment Central H or C full menu snack machines
Color TV (full control) Coffee shop/full menu Soft-drink, snack, and
Color TV Size of bath and good restaurant Sandwich machines
w/movies at $5 Standard bath None Above and microwave
Color TV Slightly larger Restaurant nearby Available
w/30-channel cable sink separate None In-room kitchen facilities
Color TV w/HBO, Much larger bath Coffee shop None
movies, etc. w/larger tub Fast food Coffee maker only
Color TV Very large tub for 2 Fast food or coffee Coffee maker and
W/ free movies shop and moderate Refrigerator
restaurant Kitchen in room
Table 1. (continued)
Lounge Message service Car maintenance Children’s playroom/
Atmosphere Note at front desk None playground
Quiet bar/lounge Message service Take car to service None
Lively, popular Note at front desk Gas on premises/ Playground only
bar/lounge Light on phone bill to room Playroom only
Type of people Light on phone and Car rental/airline Playground and
Hotel guests and message under door reservations Playroom
friends only Recorded message None Pool extras
Open to public Cleanliness/upkeep/ Car rental facility None
general appeal management skill Airline reservations Pool w/slides
Open to public Budget motor level Car rental and Pool w/slides
many singles Holiday Inn level airline reservations and equipment
Lounge nearby Nonconvention Leisure Pool w/slides,
None Hyatt level Sauna waterfall, equipment
Lounge/bar nearby Convention Hyatt level None Security
Lounge/bar w/ Fine hotel level Yes Security guard
Entertainment nearby Laundry/Valet Whirlpool/Jacuzzi None
Services None None 11 a.m. to 7 p.m.
Reservations Client pick up Outdoor 7 p.m. to 7 a.m.
Call hotel directly and drop off Indoor 24 hours
800 reservation number Self-service Exercise room Smoke detector
Check-in Valet pick up None None
Standard and drop off Basic facility w/weights In rooms and
Pre-credit clearance Special services Facility w/Nautilus throughout hotel
Machine in lobby (concierge) equipment Sprinkler system
Check-out None Racquetball courts None
At front desk Information on None Lobby and
Bill under door/ restaurants, Yes hallways only
leave key theaters, etc. Tennis courts Lobby/hallways/rooms
Key to front desk/ Arrangements and None 24-hour video camera
bill by mail reservations Yes None
Machine in lobby Travel-problem Game room/ Parking/hallway/
Limo to airport resolution entertainment public areas
None Secretarial services None Alarm button
Yes None Electric games/pinball None
Bellman Xerox machine Electric games/ Button in room,
None Xerox machine pinball/ping pong rings desk
Yes and typist Above + movie theater,
bowling