Tuesday, January 25, 2011
How to be an effective 'Sales executive?'
Training is usually undertaken in-house. Many companies offer new entrants a short induction course for their sales executives that covers knowledge of products, goods or services, as well as the methods used for sales administration. This may be organized by the employer or by an outside specialist and will also include selling techniques, i.e.:
How to sell;
How to deal with potential objections;
How to close sales.
Further development usually takes place in the form of shadowing an experienced representative and gradually taking over calls, under supervision.
It is likely that some role-play exercises will be involved. After the induction course, they spend a period of time making sales calls but without any pressure to meet targets. They would be expected to get up to speed quickly and, over a relatively short period of time, start bringing in the number of sales required by your individual target.
Lets take the example of a sales executive of FMCG company & a prospective customer:
The situation is that a sales executive wants to sell a tooth-paste to a customer (Mr. Raj).
Executive: Good after noon Mr. Raj.
Mr Raj: Good after noon.
Executive: Sir, I am from HLL & came to with a new improved close-up, sensation.
Mr. Raj: So what, sorry right now I am busy please come later.
Executive: It will take only 5 minutes.
Mr. Raj: Ok, come on tell what your product is.
Executive: Sir I am promoting & selling the new variant of close-up i.e. sensation it makes the teeth more stronger, shining & fresh breaths in a new colour gel form with extra foaming which keeps your mouth fresh for a long.
Mr. Raj: But I use Colgate.
Executive: Sir I am sure if you will use it once than you'll go for it for a long & also may be a loyal.
Mr. Raj: These features are given by all what additional you are providing?
Executive: Sir we are providing a tooth brush free with toung cleaner facility costing Rs.30/- and the tooth paste of 100 gm. Of Rs.35/-. This combo offer we are providing just for Rs.45/-.
Mr. Raj: But why the so big company is using direct selling?
Executive: just company has changed his policy & trying to reach the customers & satisfy their needs. It is a very economical offer.
Mr. Raj: But this offer will be for once!
Executive: Yes sir, but we are providing one more advantage with this, as we (as a company) are sure that customer will go for it again we are giving a coupon with this purchase, by using that at the time of next purchase you will get 100gm. tube free also.
Mr Raj: I think there is no loss in purchasing your product OK, give me one. & one thing I want to say that you are a very good sales executive definitely you will groom a day if you will continue as it is. Finally the customer takes his product & get impressed also.
Sales executives may undertake further training and development to support their career development. Opportunities available will vary from employer to employer. It is important to check at the interview stage about support available for training and the employers' attitude to continuing professional development (CPD).
Sales executives maximize the sales of a company's goods or services in many different settings. Their role helps to ensure the commercial success of a diverse range of companies in UK and overseas markets. This can involve working with high profile brands and products.
They are also involved with identifying new markets and business opportunities.
Sales executives are responsible for increasing and developing sales in areas including:
Fast moving consumer goods, or FMCGs (such as food and stationery);
Consumer durables (clothes, domestic equipment and toys); Industrial supplies;
Services (such as print and financial services).
Typical work activities:
Typical work activities will depend on the market/setting. In addition, specific responsibilities will vary according to level of seniority (client contact, for example, will increase with experience).
Typical activities may include:
Maintaining relationships with existing customers through regular review visits;
Visiting potential customers to demonstrate products and gain new markets;
Acting as a contact between a company and its existing and potential markets;
Contacting clients by phone to negotiate terms of an agreement and conclude sales;
Gathering market and customer information;
Staffing trade exhibitions and demonstrations;
Negotiating variations in price, delivery and specifications with managers;
Advising on forthcoming product developments and discussing special promotions;
Visiting retail and wholesale outlets;
Checking quantities of goods on display and in stock;
Recording sales and order information and sending copies to the sales office;
Reviewing own sales performance;
Gaining a clear understanding of customers' businesses and requirements;
Making accurate, rapid cost calculations;
Feeding future buying trends back to employers.
How Sales Techniques Work:-
As we know that every company has its own sales team screened, hired, and trained on the features and benefits of their product and now it's time to put their "feet on the street!" But what about their sales approach? Did you think through the possible sales techniques and make an informed choice about what would work most effectively for your product and market? If not, your team may not be off to the fast break you hope for. Take the time to think about what approach would work best for the sales environment your reps will be facing. Suppose that you are a business/ owner of a company or-
If you're in a consulting or service-oriented business you know that it's going to require a relationship building process, but a product sales environment may require the same thing. The art of selling is not as straight forward as you may think. If you haven't been out there and sold before (as many new business owners haven't) then you may benefit from going through this workshop and identifying what you think might work for your business. If you're seasoned sales professional now in a sales management position there may also be a thing or two for you. In this article, we'll look at some of the more effective selling techniques out there.
Have you ever had someone convince you to buy something you knew you'd never use? How do they do that? Did you want to buy anything else from them? Did you have a good relationship with them? These are some of the questions that come up when you think about what types of techniques your sales team should use.
Early books about sales techniques (we're talking about the early 1900's) included key words like ethics, service, relationships, hard work, doing the best job possible, and loyalty to your company. These all led to the idea of building a friendship and relationship with your customers so they would keep coming back. (Sound familiar?) After about 10 years other ideas began to surface. Door-to-door salesmen discovered that they could increase their sales by using specific words and specific persuasion methods. This lead to the perfecting and proliferation of sales techniques that focused not on the customer's needs or building a relationship, but on closing techniques and methods that rated a one-time sale, which was all they were interested in.
The foundations of most modern sales techniques lie in five stages of action. These began in the 1950's and include:
1. Attention: You have to get the attention of your prospect through some advertising or prospecting method.
2. Interest: Build their interest by using an emotional appeal such as how good they will look to their boss when they make this deal that will save the company thousands of dollars!
3. Desire: Build their desire for your product by showing them its features and letting them sample or test-drive it.
4. Conviction: Increase their desire for your product by statistically proving the worth of your product. Compare it to its competitors. Use testimonials from happy customers.
5. Action: Encourage the prospect to act. This is your closing. Ask for the order. If they object, address their objections. There are then many variations of closing techniques that can help get the business.
There is a plethora of closing techniques that range from hard sell to soft sell and everything in-between. Some of these include:
A Direct Close: Simply asking for the order when you are sure your prospect is ready.
A Deal/Concession Close: Using this closing technique gives the prospect the feeling that they are making a smart choice and saving money (or getting more value). Use it with phrases like "Order today and I can add this other module for only 10% more."
A Time-Driven Close: This one works well with statements like, "prices are going up next week, so you should go ahead a let me place your order today."
Trial Offer: You can let the prospect use the product at no risk for a trial period. This works well if you're selling products that make people's lives easier. They aren't likely to want to give it back if it has saved them a lot of time and effort during the trial period. On the other hand, if they haven't had the experience with the product you told them they would then you probably won't get another chance.
Many more closing techniques exist, but we're going to focus on one of the more successful techniques for building a large and loyal customer base. That focus is, once again, Relationship Selling
Did you know that it costs more than five times as much to get a new customer as it does to keep an existing customer? That in it should help you understand the value of building a relationship with your customers and turning them into both repeat buyers and spokespeople for your company. Word of mouth referrals are still one of the best ways to make new sales. If Joe tells Ed he got a great deal from Joanna at XYZ Company, then Ed is more likely to go to Joanna and also buy (or at least be receptive if Joanna calls him to set up an appointment.)
Relationship selling is all about building a friendship or relationship with your prospects and listening to their needs. Once you've built that relationship, shown you care, and earned their trust, you are on the road to making them a customer. Knowing their needs and finding out their secret fears (for example... your client may confide to you, "If I can't make this project work within budget, my boss will probably replace me!") can help you find solutions for them that are exactly on-target with their needs and build an even stronger relationship. With a relationship in place, working out details is a breeze. Those details become obstacles if you don't have the existing relationship.
As a client, some of my best experiences with sales people were with those who honestly listened to my needs, and showed an interest in more than just the business. They came in with a low pressure, open, and honest approach and won my business. I didn't mind setting up appointments for their visits. I looked forward to them. It was low pressure and friendly. My company received good service, good prices, and everyone was happy. I knew they would react quickly if I had problems or emergency needs. So, when competitors called, I quickly told them we were happy with our current vendor - even if they may have been able to give us a better price! That's part of the power of relationship selling!
Most people react negatively to high pressure sales. In relationship selling, high pressure is not typically part of the equation, simply because it's hard to have a friendly relationship with a client who feels pressured by you. In relationship selling, you become a form of support for your clients. Your services or products become something they depend on, and the more you can suit their needs and make their jobs easier, the better they will respond to additional sales offers. You'll also find that relationship selling benefits companies that offer products in very competitive markets - particularly if there isn't a lot of difference between products!
Part of relationship selling involves maintaining regular contact. If you neglect a client who has trust in your integrity as a person and as a salesperson, that client may finally be forced to turn to your competitor. (Who has probably been calling regularly to get their business?) So, make sure you not only build the relationship, but keep regular contact and keep all channels of communication open. Make available several methods of contact for any type of emergency need. Or you may find that, in an emergency, your client was forced to contact that persistent competitor and discovered that, "Hey, he/she's a nice person too! And their product is maybe even a little better!
"So, the lesson is, make sure you maintain contact and are always accessible to your clients, or you may find yourself having to replace them!
An important part of relationship selling is also having the technology available to manage and maintain those relationships. That often comes in the form of contact management software or a good Customer Relationship Management (CRM) system. We'll talk about that a little later in this article.
A new sales technique that has recently surfaced involves spending significant sales time only with those prospects who offer the highest probability of a sale. Arriving at that determination involves asking pointed questions and letting the prospect do the majority of the talking. The approach is to focus only on prospects who need your product, want you product, and can afford your product. Rather than using the effort trying to turn a low probability prospect into a high probability prospect, you focus your efforts entirely on the high probability group.
Determining who high probability is done through a series of questions that require positive answers. If at any point, you don't get the answer you need, you end the meeting, thank the person, and leave. You don't waste your time and/or your proposal department's time on putting together a proposal that you know won't be accepted. Now, just because the prospect states that they are not interested, doesn't mean you pack your bags and leave. If they've answered all other questions with the right answers then you can continue the line of questioning until you determine without doubt that they will buy. This means you never ask for the order. If you've done the questioning (interview) session right then when it is completed you and the prospect have come to a meeting of the minds and the logical next step is that they will place an order. Your series of questions has eliminated any objections (or else you have already said goodbye and left!).
Rather than trying to manipulate the prospect and get them to do something they don't want to do, you are letting them come to the decision that it is the right thing to do. You are laying the foundation for a mutually beneficial basis for doing business.
There is a lot more to be learned about high probability selling, as well as the many other sales techniques out there. Let's talk about some of the basic techniques, tips, sales styles, and closing sales.
Basic (but Effective) Sales Tips and Techniques:
Today there are more types of sales styles and techniques than you can shake a stick at. So how do you know what works and what doesn't? It really boils down to what works for you and what works for your product. Think about your target market and their perceptions about your product type. Do they know they need it and simply have to choose from the various brands on the market? Or, do they have no idea how much the product would help them be more productive? Do they even know about your product? Will the sales call be an education for them - or you?
Think through these things before determining what methods might work for your product or service. It goes without saying that a sales method that works for office supplies won't work for management consulting services. Although they are both targeting a similar market, the knowledge and understanding of your prospects will be much different. They have to be educated about how much they can benefit from consulting services, whereas, they already know they have to have binders to put their reports in, or paper for their copiers.
So, even though there are many sales methods, the choices are narrowed as you think about your market and what their needs are, as well as what their expectations may be.
With that said, let's just go over some things that are beneficial in almost any market. These tips are basic guidelines that most any sales person can benefit from.
Listen to the emotional side of your prospect or client:
Emotions are tied into almost everything we do even if we don't realize it. Your client may mention off-hand that they are really stressed-out about a particular project they are working on (even if it doesn't relate to what you're selling them). Make a note of this and see if there is anything you can do to assist them. You may have another client who had a similar dilemma and found a good solution. Make those connections and help where ever you can. You'll be rewarded with loyalty from all of your clients.
Focus on your prospect or client's needs:
We've talked about it before, but it's worth mentioning again. You may be tempted to sell your client your top-of-the-line model gadget when they really only need the mid-line model. By selling them more than they need, you may be cutting off future relations with them. Once they realize (and they will eventually) that they don't need most of what you sold them, they'll feel bitter and resentful toward you for wasting their money and not looking out for their best interest. They'll see you as a "salesperson" and not as a resource.
Use language that focuses on your prospect or client:
Simply changing the way you speak may also make a difference in how you are received by your prospect. Using "you" and "yours," or "you'll find..." rather than "I think" or "Let me tell you about," brings your message a little closer to home and may grab their attention more quickly.
Help your prospect see the bottom line:
If you know your product can help clients save money, or increase profitability, then make sure they understand that. Your product may have an edge in that it includes features that save time. Time is money as the saying goes, and if you can save time your can often sell your product.
Find out your prospect's priorities:
You can save yourself a lot of wasted time and effort by simply knowing how important your product and its benefits are to your prospect. If you've listened to them and determined the need, but still aren't getting anywhere, find out if there are other elements of their business that are taking priority and pushing your sale aside. If you know they have to implement a program before they can spend time considering (or funds purchasing) your product then you can schedule a call back at a later date that may stand a better chance of getting some attention. To do this you have to ask the questions because the information is not always volunteered. (Again, the key is focusing on the needs of your prospect, and having an open relationship already in place.)
Know your prospect:
Find out as much as you possibly can about your prospect before your appointment. This will not only help you anticipate their needs ahead of time, but will also show them you've done your homework and have an interest in their business other than just selling your product. When talking with them, let them do most of the talking. People usually love talking about their businesses and its successes. For example, you might bring up the fact that you saw they won an award at a regional meeting then let them proceed to fill you in on the details. You might also compliment them on the efficiency of their production system or the quality of their products. This will also open the door to more conversation and the opportunity to learn more about their needs and how your product will fit those needs.
Focus on why they should buy - not their objections:
The idea here is that while you are building up the benefits associated with using your product, they will be minimizing their resistance to it. By focusing on what you know the prospect likes, you are building up the importance of the positive and reducing the importance of the negatives.
Sell the benefits - not the product:
You've heard this one before, but it is worth repeating. In most cases, you're not selling your product, you're selling the benefits the product will produce. In other words, you're not selling digital phones, you're selling the ability to communicate from anywhere. You are selling freedom to leave the confines of the office and still be accessible. You're selling the ability to have a more flexible work schedule. You're selling peace of mind for long trips. You're selling security. Get to the emotional or financial benefits and you're on to something!
Never rush the sale or the customer:
Remember the section about building a relationship with your customers? This is a very important step. It can help give the prospect the right perception of you and your company. Rushing them instead of letting them come to their own decision to buy can create hostilities that can't be overturned. It can make the difference between getting the sale and creating a loyal customer, and having to start over with another prospect. In the competitive climate of many markets, you definitely don't want to risk losing a qualified prospect who you know needs your product.
Know your products, as well as the market - be a RESOURCE:
In order to be seen as a valuable resource for your clients, you have to demonstrate that you not only know and understand your products and the market, but can assist them in making good decisions and provide them with tools to improve their business. If you don't have these skills and knowledge, get them. You'll be rewarded over and over by loyal clients who trust your opinions and advice, and buy from you frequently.
Follow through with promises:
If you do nothing else, do this. Always follow through with what you say you are going to do. If you say you'll send a quote by Friday - DO IT! If you say you'll check with someone else in your company about an issue that's come up - DO IT! Don't forget. Use the technology available to you (even if it's a sticky note on your dash board!) and make sure you follow through with your promises. There is no surer way to lose the faith of a prospect (or existing client) than to forget to do something you tell them you will do. If something comes up that forces you to have to delay, call them and give them a heads up. They may have a meeting arranged to present the information you're supplying them with, and if they don't have it you'll both look bad.
Focus on your client's success:
Not to beat a dead horse, but there is tremendous value in being a resource for your client. If you can help them to succeed then they are more likely to help you succeed. Be a coach for your clients (at least in your areas of expertise). You have the unique perspective of seeing how many different businesses operate. Gather this knowledge and share it with your clients or prospects. Make sure they understand that you want to see them succeed, not just sell your products.
Use explanations rather than excuses:
If you do have to explain to a customer why there is a problem with their order, their repair, their service, etc. Explain why the problem is there in the first place, rather than using an excuse. For example, if you provide health care services and you're having difficulty meeting the scheduling needs of the customer, you might it explain it like this, "With this being a particularly bad allergy season we have had more emergency calls due to asthma (or whatever the case may be) and these patients can't wait for a scheduled appointment. Our staff is behind schedule, but we are addressing the problem now by bringing in temporary help for these critical need times. So we should be able to schedule your service on 'x' date." Understanding the problem may help alleviate some of their frustration. Verbalizing the cause may also keep you more aware of the potential problems so you can be more prepared the next time around.
So, there you have some sales tips to keep in mind when you're out there pounding the pavement. Stop, Look, and Listen. It's good advice on the street, and it's good advice in sales. Next we'll talk about some of the cool technology to enhance your selling.
Technology to Enhance Selling:
The tools available to the sales professional are endless. If you had the mind to, you could have four or more electronic devices strapped to your body enabling you to be totally connected and available to anyone in the world at all times. Now that's dedication to keeping the lines of communication open!
You would have your beeper on your belt for those people you wanted to hear from but not acknowledge.
You would have your cell phone in your coat pocket for those people you wanted to hear from and/or be able to contact regardless of where you were or what you were doing, or for surfing the net, checking e-mail, buying a soft drink from a vending machine, etc.
You would have your PDA (Personal Digital Assistant) in your shirt pocket to look up (while driving your rental car) the address of your next appointment. Or you could check your calendar to see where the heck that appointment is supposed to be, surf the net to Map Quest to get directions, check your e-mail, make notes to yourself, check your to-do list when you were bored, etc.
You would carry your laptop in your black leather executive backpack to use in airports to document the meetings you were at, the sales you made, surf the net, check your e-mail, play Free-Cell, update your contact management software, and complete your expense report. You would then sync that info with your PDA and you're ready for the next day!
You may even be carrying your digital projector to display those dazzling PowerPoint™ presentations you've put together.
Now there are even web-based applications for sales that you can access from anywhere using your web-enabled cell phone, PDA, or good old-fashioned laptop. Isn't technology great!?
In case you've been living in a cave for the past few years, you probably know all about CRM and its relationship to Contact Management Software. Basically, contact management software was the foundation for what is now Customer Relationship Management, or CRM. There are many software packages available to choose from that are either simply the contact manager portion, or the full-blown CRM version. You can also find programs that are web-based to enable you to access your information from anywhere at any time. Regardless of which level your company uses, having some form of contact management software is necessary.
CRM is a strategy, process, and technology that let's your company make the most of every sale by optimizing revenue and getting a better understanding of the customer's needs. The CRM universe rolls together sales (as a type of Sales Force Automation), marketing, and customer service into a single software-driven technology. In other words, it includes the areas of your company that affect the relationships with your customers. It puts this information into a single package which encompasses the meat of what every customer-centric business needs to know and keep track of. Every interaction with a customer is recorded in this single system. That information is then used to manage, measure, and keep track of the processes of marketing, sales and customer service as they relate to that customer. Overall, it builds greater customer loyalty and a better customer experience.
No more will the Sales department blame Marketing for not communicating to them. No more will Customer Service blame Sales for disgruntled customers. No more will Marketing blame everyone else for not implementing their business solutions. Now everyone can live in one big happy, customer-focused universe that communicates and desegregates the internal workings of the company. Before, no one was accountable for why the customer wasn't happy. There was a lot of finger-pointing and buck-passing. With CRM everyone has access to what's going on with every customer and can access the information necessary to keep that customer happy.
Now, if we focus on the Sales portion of this we see that, with CRM, Sales can build that relationship (remember Relationship Selling) and that relationship can be extended deeper into the company to customer service. So, you have an ever greater chance of keeping that customer happy and addressing their needs quickly and efficiently. Marketing can use the data gathered to develop new business solutions, directions, and more effectively communicate the offerings of the company.
Notes about Setting Up Your CRM System
As great as CRM is, it can't work without some up-front planning and forethought. For example, before you set up your sales team with a contact management or CRM system you have to first:
Plan the details of the information you want to collect.
Set up procedures and protocols for how the information will be entered.
Standardize phrasing and abbreviations for company names or address information.
Create drop-down lists for common terms and items that everyone would use.
Agree on report formats and styles and set up templates.
Once you have the preliminary information identified and squared away, set up time to thoroughly train your sales team and have an accessible resource for future questions and suggestions. It's a process that has to be planned and managed in order to be effective.
CRM is definitely the way of the future. Companies that don't implement some form of CRM may have a hard time keeping their customers as happy as their competitors who have a CRM system do.
Some Final Tips for Managing a Successful Sales Team
1. Support your sales team's efforts.
2. Give them the tools and technology they need to succeed and beat the competition.
3. Foster good relationships between your sales team, production and administration.
4. Communicate regularly with your team.
5. Mediate internal conflicts before they drive good sales reps away.
6. Take action to fix problems as they arise, not after you've lost your team.
Sources: Compensating the sales force: A Practical guide to designing winning sales Compensation Plans. David J. Cichelli.
Advertising, Sales & Distribution, the Power Turning the Marketing Wheels, E.E.duMortier,
Tuesday, January 4, 2011
Managers need information in order to introduce products and services that create value in the mind of the customer. But the perception of value is a subjective one, and what customers value this year may be quite different from what they value next year. As such, the attributes that create value cannot simply be deduced from common knowledge. Rather, data must be collected and analyzed. The goal of marketing research is to provide the facts and direction that managers need to make their more important marketing decisions.
To maximize the benefit of marketing research, those who use it need to understand the research process and its limitations.
Marketing Research vs. Market Research
These terms often are used interchangeably, but technically there is a difference.
Market research deals specifically with the gathering of information about a market's size and trends. Marketing research covers a wider range of activities. While it may involve market research, marketing research is a more general systematic process that can be applied to a variety of marketing problems.
The Value of Information
Information can be useful, but what determines its real value to the organization? In general, the value of information is determined by:
* The ability and willingness to act on the information.
* The accuracy of the information.
* The level of indecisiveness that would exist without the information.
* The amount of variation in the possible results.
* The level of risk aversion.
* The reaction of competitors to any decision improved by the information.
* The cost of the information in terms of time and money.
The Marketing Research Process
Once the need for marketing research has been established, most marketing research projects involve these steps:
1. Define the problem
2. Determine research design
3. Identify data types and sources
4. Design data collection forms and questionnaires
5. Determine sample plan and size
6. Collect the data
7. Analyze and interpret the data
8. Prepare the research report
The decision problem faced by management must be translated into a market research problem in the form of questions that define the information that is required to make the decision and how this information can be obtained. Thus, the decision problem is translated into a research problem. For example, a decision problem may be whether to launch a new product. The corresponding research problem might be to assess whether the market would accept the new product.
The objective of the research should be defined clearly. To ensure that the true decision problem is addressed, it is useful for the researcher to outline possible scenarios of the research results and then for the decision maker to formulate plans of action under each scenario. The use of such scenarios can ensure that the purpose of the research is agreed upon before it commences.
Marketing research can classified in one of three categories:
* Exploratory research
* Descriptive research
* Causal research
These classifications are made according to the objective of the research. In some cases the research will fall into one of these categories, but in other cases different phases of the same research project will fall into different categories.
Exploratory research has the goal of formulating problems more precisely, clarifying concepts, gathering explanations, gaining insight, eliminating impractical ideas, and forming hypotheses. Exploratory research can be performed using a literature search, surveying certain people about their experiences, focus groups, and case studies. When surveying people, exploratory research studies would not try to acquire a representative sample, but rather, seek to interview those who are knowledgeable and who might be able to provide insight concerning the relationship among variables. Case studies can include contrasting situations or benchmarking against an organization known for its excellence. Exploratory research may develop hypotheses, but it does not seek to test them. Exploratory research is characterized by its flexibility.
Descriptive research is more rigid than exploratory research and seeks to describe users of a product, determine the proportion of the population that uses a product, or predict future demand for a product. As opposed to exploratory research, descriptive research should define questions, people surveyed, and the method of analysis prior to beginning data collection. In other words, the who, what, where, when, why, and how aspects of the research should be defined. Such preparation allows one the opportunity to make any required changes before the costly process of data collection has begun.
There are two basic types of descriptive research: longitudinal studies and cross-sectional studies. Longitudinal studies are time series analyses that make repeated measurements of the same individuals, thus allowing one to monitor behavior such as brand-switching. However, longitudinal studies are not necessarily representative since many people may refuse to participate because of the commitment required. Cross-sectional studies sample the population to make measurements at a specific point in time. A special type of cross-sectional analysis is a cohort analysis, which tracks an aggregate of individuals who experience the same event within the same time interval over time. Cohort analyses are useful for long-term forecasting of product demand.
Causal research seeks to find cause and effect relationships between variables. It accomplishes this goal through laboratory and field experiments.
Data Types and Sources
Before going through the time and expense of collecting primary data, one should check for secondary data that previously may have been collected for other purposes but that can be used in the immediate study. Secondary data may be internal to the firm, such as sales invoices and warranty cards, or may be external to the firm such as published data or commercially available data. The government census is a valuable source of secondary data.
Secondary data has the advantage of saving time and reducing data gathering costs. The disadvantages are that the data may not fit the problem perfectly and that the accuracy may be more difficult to verify for secondary data than for primary data.
Some secondary data is republished by organizations other than the original source. Because errors can occur and important explanations may be missing in republished data, one should obtain secondary data directly from its source. One also should consider who the source is and whether the results may be biased.
There are several criteria that one should use to evaluate secondary data.
Whether the data is useful in the research study.
How current the data is and whether it applies to time period of interest.
Errors and accuracy - whether the data is dependable and can be verified.
Presence of bias in the data.
Specifications and methodologies used, including data collection method, response rate, quality and analysis of the data, sample size and sampling technique, and questionnaire design.
Objective of the original data collection.
Nature of the data, including definition of variables, units of measure, categories used, and relationships examined.
Often, secondary data must be supplemented by primary data originated specifically for the study at hand. Some common types of primary data are:
* demographic and socioeconomic characteristics
* psychological and lifestyle characteristics
* attitudes and opinions
* awareness and knowledge - for example, brand awareness
* intentions - for example, purchase intentions. While useful, intentions are not a reliable indication of actual future behavior.
* motivation - a person's motives are more stable than his/her behavior, so motive is a better predictor of future behavior than is past behavior.
Primary data can be obtained by communication or by observation. Communication involves questioning respondents either verbally or in writing. This method is versatile, since one needs only to ask for the information; however, the response may not be accurate. Communication usually is quicker and cheaper than observation. Observation involves the recording of actions and is performed by either a person or some mechanical or electronic device. Observation is less versatile than communication since some attributes of a person may not be readily observable, such as attitudes, awareness, knowledge, intentions, and motivation. Observation also might take longer since observers may have to wait for appropriate events to occur, though observation using scanner data might be quicker and more cost effective. Observation typically is more accurate than communication.
Personal interviews have an interviewer bias that mail-in questionnaires do not have. For example, in a personal interview the respondent's perception of the interviewer may affect the responses.
The questionnaire is an important tool for gathering primary data. Poorly constructed questions can result in large errors and invalidate the research data, so significant effort should be put into the questionnaire design. The questionnaire should be tested thoroughly prior to conducting the survey.
Attributes can be measured on nominal, ordinal, interval, and ratio scales:
Nominal numbers are simply identifiers, with the only permissible mathematical use being for counting. Example: social security numbers.
Ordinal scales are used for ranking. The interval between the numbers conveys no meaning. Median and mode calculations can be performed on ordinal numbers. Example: class ranking
Interval scales maintain an equal interval between numbers. These scales can be used for ranking and for measuring the interval between two numbers. Since the zero point is arbitrary, ratios cannot be taken between numbers on an interval scale; however, mean, median, and mode are all valid. Example: temperature scale
Ratio scales are referenced to an absolute zero values, so ratios between numbers on the scale are meaningful. In addition to mean, median, and mode, geometric averages also are valid. Example: weight
Validity and Reliability
The validity of a test is the extent to which differences in scores reflect differences in the measured characteristic. Predictive validity is a measure of the usefulness of a measuring instrument as a predictor. Proof of predictive validity is determined by the correlation between results and actual behavior. Construct validity is the extent to which a measuring instrument measures what it intends to measure.
Reliability is the extent to which a measurement is repeatable with the same results. A measurement may be reliable and not valid. However, if a measurement is valid, then it also is reliable and if it is not reliable, then it cannot be valid. One way to show reliability is to show stability by repeating the test with the same results.
Many of the questions in a marketing research survey are designed to measure attitudes. Attitudes are a person's general evaluation of something. Customer attitude is an important factor for the following reasons:
* Attitude helps to explain how ready one is to do something.
* Attitudes do not change much over time.
* Attitudes produce consistency in behavior.
* Attitudes can be related to preferences.
Attitudes can be measured using the following procedures:
Self-reporting - subjects are asked directly about their attitudes. Self-reporting is the most common technique used to measure attitude.
Observation of behavior - assuming that one's behavior is a result of one's attitudes, attitudes can be inferred by observing behavior. For example, one's attitude about an issue can be inferred by whether he/she signs a petition related to it.
Indirect techniques - use unstructured stimuli such as word association tests.
Performance of objective tasks - assumes that one's performance depends on attitude. For example, the subject can be asked to memorize the arguments of both sides of an issue. He/she is more likely to do a better job on the arguments that favor his/her stance.
Physiological reactions - subject's response to a stimuli is measured using electronic or mechanical means. While the intensity can be measured, it is difficult to know if the attitude is positive or negative.
Multiple measures - a mixture of techniques can be used to validate the findings, especially worthwhile when self-reporting is used.
There are several types of attitude rating scales:
Equal-appearing interval scaling - a set of statements are assembled. These statements are selected according to their position on an interval scale of favorableness. Statements are chosen that has a small degree of dispersion. Respondents then are asked to indicate with which statements they agree.
Likert method of summated ratings - a statement is made and the respondents indicate their degree of agreement or disagreement on a five point scale (Strongly Disagree, Disagree, Neither Agree Nor Disagree, Agree, Strongly Agree).
Semantic differential scale - a scale is constructed using phrases describing attributes of the product to anchor each end. For example, the left end may state, "Hours are inconvenient" and the right end may state, "Hours are convenient". The respondent then marks one of the seven blanks between the statements to indicate his/her opinion about the attribute.
Stapel Scale - similar to the semantic differential scale except that 1) points on the scale are identified by numbers, 2) only one statement is used and if the respondent disagrees a negative number should marked, and 3) there are 10 positions instead of seven. This scale does not require that bipolar adjectives be developed and it can be administered by telephone.
Q-sort technique - the respondent if forced to construct a normal distribution by placing a specified number of cards in one of 11 stacks according to how desirable he/she finds the characteristics written on the cards.
The sampling frame is the pool from which the interviewees are chosen. The telephone book often is used as a sampling frame, but have some shortcomings. Telephone books exclude those households that do not have telephones and those households with unlisted numbers. Since a certain percentage of the numbers listed in a phone book are out of service, there are many people who have just moved who are not sampled. Such sampling biases can be overcome by using random digit dialing. Mall intercepts represent another sampling frame, though there are many people who do not shop at malls and those who shop more often will be over-represented unless their answers are weighted in inverse proportion to their frequency of mall shopping.
In designing the research study, one should consider the potential errors. Two sources of errors are random sampling error and non-sampling error. Sampling errors are those due to the fact that there is a non-zero confidence interval of the results because of the sample size being less than the population being studied. Non-sampling errors are those caused by faulty coding, untruthful responses, respondent fatigue, etc.
There is a tradeoff between sample size and cost. The larger the sample size, the smaller the sampling error but the higher the cost. After a certain point the smaller sampling error cannot be justified by the additional cost.
While a larger sample size may reduce sampling error, it actually may increase the total error. There are two reasons for this effect. First, a larger sample size may reduce the ability to follow up on non-responses. Second, even if there is a sufficient number of interviewers for follow-ups, a larger number of interviewers may result in a less uniform interview process.
In addition to the intrinsic sampling error, the actual data collection process will introduce additional errors. These errors are called non-sampling errors. Some non-sampling errors may be intentional on the part of the interviewer, who may introduce a bias by leading the respondent to provide a certain response. The interviewer also may introduce unintentional errors, for example, due to not having a clear understanding of the interview process or due to fatigue.
Respondents also may introduce errors. A respondent may introduce intentional errors by lying or simply by not responding to a question. A respondent may introduce unintentional errors by not understanding the question, guessing, not paying close attention, and being fatigued or distracted.
Such non-sampling errors can be reduced through quality control techniques.
Data Analysis - Preliminary Steps
Before analysis can be performed, raw data must be transformed into the right format. First, it must be edited so that errors can be corrected or omitted. The data must then be coded; this procedure converts the edited raw data into numbers or symbols. A codebook is created to document how the data was coded. Finally, the data is tabulated to count the number of samples falling into various categories. Simple tabulations count the occurrences of each variable independently of the other variables. Cross tabulations, also known as contingency tables or cross tabs, treats two or more variables simultaneously. However, since the variables are in a two-dimensional table, cross tabbing more than two variables is difficult to visualize since more than two dimensions would be required. Cross tabulation can be performed for nominal and ordinal variables.
Cross tabulation is the most commonly utilized data analysis method in marketing research. Many studies take the analysis no further than cross tabulation. This technique divides the sample into sub-groups to show how the dependent variable varies from one subgroup to another. A third variable can be introduced to uncover a relationship that initially was not evident.
The conjoint analysis is a powerful technique for determining consumer preferences for product attributes.
A basic fact about testing hypotheses is that a hypothesis may be rejected but that the hypothesis never can be unconditionally accepted until all possible evidence is evaluated. In the case of sampled data, the information set cannot be complete. So if a test using such data does not reject a hypothesis, the conclusion is not necessarily that the hypothesis should be accepted.
The null hypothesis in an experiment is the hypothesis that the independent variable has no effect on the dependent variable. The null hypothesis is expressed as H0. This hypothesis is assumed to be true unless proven otherwise. The alternative to the null hypothesis is the hypothesis that the independent variable does have an effect on the dependent variable. This hypothesis is known as the alternative, research, or experimental hypothesis and is expressed as H1. This alternative hypothesis states that the relationship observed between the variables cannot be explained by chance alone.
There are two types of errors in evaluating a hypotheses:
* Type I error: occurs when one rejects the null hypothesis and accepts the alternative, when in fact the null hypothesis is true.
* Type II error: occurs when one accepts the null hypothesis when in fact the null hypothesis is false.
Because their names are not very descriptive, these types of errors sometimes are confused. Some people jokingly define a Type III error to occur when one confuses Type I and Type II. To illustrate the difference, it is useful to consider a trial by jury in which the null hypothesis is that the defendant is innocent. If the jury convicts a truly innocent defendant, a Type I error has occurred. If, on the other hand, the jury declares a truly guilty defendant to be innocent, a Type II error has occurred.
Hypothesis testing involves the following steps:
* Formulate the null and alternative hypotheses.
* Choose the appropriate test.
* Choose a level of significance (alpha) - determine the rejection region.
* Gather the data and calculate the test statistic.
* Determine the probability of the observed value of the test statistic under the null hypothesis given the sampling distribution that applies to the chosen test.
* Compare the value of the test statistic to the rejection threshold.
* Based on the comparison, reject or do not reject the null hypothesis.
* Make the marketing research conclusion.
In order to analyze whether research results are statistically significant or simply by chance, a test of statistical significance can be run.
Tests of Statistical Significance
The chi-square ( c2 ) goodness-of-fit test is used to determine whether a set of proportions have specified numerical values. It often is used to analyze bivariate cross-tabulated data. Some examples of situations that are well-suited for this test are:
* A manufacturer of packaged products test markets a new product and wants to know if sales of the new product will be in the same relative proportion of package sizes as sales of existing products.
* A company's sales revenue comes from Product A (50%), Product B (30%), and Product C (20%). The firm wants to know whether recent fluctuations in these proportions are random or whether they represent a real shift in sales.
The chi-square test is performed by defining k categories and observing the number of cases falling into each category. Knowing the expected number of cases falling in each category, one can define chi-squared as:
c2 = å ( Oi - Ei )2 / Ei
Oi = the number of observed cases in category i,
Ei = the number of expected cases in category i,
k = the number of categories,
the summation runs from i = 1 to i = k.
Before calculating the chi-square value, one needs to determine the expected frequency for each cell. This is done by dividing the number of samples by the number of cells in the table.
To use the output of the chi-square function, one uses a chi-square table. To do so, one needs to know the number of degrees of freedom (df). For chi-square applied to cross-tabulated data, the number of degrees of freedom is equal to
( number of columns - 1 ) ( number of rows - 1 )
This is equal to the number of categories minus one. The conventional critical level of 0.05 normally is used. If the calculated output value from the function is greater than the chi-square look-up table value, the null hypothesis is rejected.
Another test of significance is the Analysis of Variance (ANOVA) test. The primary purpose of ANOVA is to test for differences between multiple means. Whereas the t-test can be used to compare two means, ANOVA is needed to compare three or more means. If multiple t-tests were applied, the probability of a TYPE I error (rejecting a true null hypothesis) increases as the number of comparisons increases.
One-way ANOVA examines whether multiple means differ. The test is called an F-test. ANOVA calculates the ratio of the variation between groups to the variation within groups (the F ratio). While ANOVA was designed for comparing several means, it also can be used to compare two means. Two-way ANOVA allows for a second independent variable and addresses interaction.
To run a one-way ANOVA, use the following steps:
1. Identify the independent and dependent variables.
2. Describe the variation by breaking it into three parts - the total variation, the portion that is within groups, and the portion that is between groups (or among groups for more than two groups). The total variation (SStotal) is the sum of the squares of the differences between each value and the grand mean of all the values in all the groups. The in-group variation (SSwithin) is the sum of the squares of the differences in each element's value and the group mean. The variation between group means (SSbetween) is the total variation minus the in-group variation (SStotal - SSwithin).
3. Measure the difference between each group's mean and the grand mean.
4. Perform a significance test on the differences.
5. Interpret the results.
This F-test assumes that the group variances are approximately equal and that the observations are independent. It also assumes normally distributed data; however, since this is a test on means the Central Limit Theorem holds as long as the sample size is not too small.
ANOVA is efficient for analyzing data using relatively few observations and can be used with categorical variables. Note that regression can perform a similar analysis to that of ANOVA.
Analysis of the difference in means between groups provides information about individual variables, it is not useful for determine their individual impacts when the variables are used in combination. Since some variables will not be independent from one another, one needs a test that can consider them simultaneously in order to take into account their interrelationship. One such test is to construct a linear combination, essentially a weighted sum of the variables. To determine which variables discriminate between two or more naturally occurring groups, discriminant analysis is used. Discriminant analysis can determine which variables are the best predictors of group membership. It determines which groups differ with respect to the mean of a variable, and then uses that variable to predict new cases of group membership. Essentially, the discriminant function problem is a one-way ANOVA problem in that one can determine whether multiple groups are significantly different from one another with respect to the mean of a particular variable.
A discriminant analysis consists of the following steps:
1. Formulate the problem.
2. Determine the discriminant function coefficients that result in the highest ratio of between-group variation to within-group variation.
3. Test the significance of the discriminant function.
4. Interpret the results.
5. Determine the validity of the analysis.
Discriminant analysis analyzes the dependency relationship, whereas factor analysis and cluster analysis address the interdependency among variables.
Factor analysis is a very popular technique to analyze interdependence. Factor analysis studies the entire set of interrelationships without defining variables to be dependent or independent. Factor analysis combines variables to create a smaller set of factors. Mathematically, a factor is a linear combination of variables. A factor is not directly observable; it is inferred from the variables. The technique identifies underlying structure among the variables, reducing the number of variables to a more manageable set. Factor analysis groups variables according to their correlation.
The factor loading can be defined as the correlations between the factors and their underlying variables. A factor loading matrix is a key output of the factor analysis. An example matrix is shown below.
Factor 1 Factor 2 Factor 3
Column's Sum of Squares:
Each cell in the matrix represents correlation between the variable and the factor associated with that cell. The square of this correlation represents the proportion of the variation in the variable explained by the factor. The sum of the squares of the factor loadings in each column is called an eigenvalue. An eigenvalue represents the amount of variance in the original variables that is associated with that factor. The communality is the amount of the variable variance explained by common factors.
A rule of thumb for deciding on the number of factors is that each included factor must explain at least as much variance as does an average variable. In other words, only factors for which the eigenvalue is greater than one are used. Other criteria for determining the number of factors include the Scree plot criteria and the percentage of variance criteria.
To facilitate interpretation, the axis can be rotated. Rotation of the axis is equivalent to forming linear combination's of the factors. A commonly used rotation strategy is the varimax rotation. Varimax attempts to force the column entries to be either close to zero or one.
Market segmentation usually is based not on one factor but on multiple factors. Initially, each variable represents its own cluster. The challenge is to find a way to combine variables so that relatively homogeneous clusters can be formed. Such clusters should be internally homogeneous and externally heterogeneous. Cluster analysis is one way to accomplish this goal. Rather than being a statistical test, it is more of a collection of algorithms for grouping objects, or in the case of marketing research, grouping people. Cluster analysis is useful in the exploratory phase of research when there are no a-priori hypotheses.
Cluster analysis steps:
Formulate the problem, collecting data and choosing the variables to analyze.
Choose a distance measure. The most common is the Euclidean distance. Other possibilities include the squared Euclidean distance, city-block (Manhattan) distance, Chebychev distance, power distance, and percent disagreement.
Choose a clustering procedure (linkage, nodal, or factor procedures).
Determine the number of clusters. They should be well separated and ideally they should be distinct enough to give them descriptive names such as professionals, buffs, etc.
Profile the clusters.
Assess the validity of the clustering.
Marketing Research Report
The format of the marketing research report varies with the needs of the organization. The report often contains the following sections:
* Authorization letter for the research
* Table of Contents
* List of illustrations
* Executive summary
* Research objectives
* Conclusions and recommendations
* Appendices containing copies of the questionnaires, etc.
Marketing research by itself does not arrive at marketing decisions, nor does it guarantee that the organization will be successful in marketing its products. However, when conducted in a systematic, analytical, and objective manner, marketing research can reduce the uncertainty in the decision-making process and increase the probability and magnitude of success.