Though market forecasting is important in every industry, it is particularly valuable in markets where individual products are expensive to produce and to store in inventory, or where products quickly become obsolete because of technological innovation.
By using market research, companies can build tighter long-term demand projections, minimize inventory residuals and optimize production plans. The following is an example of how one company leveraged market research to help size market opportunity for a new product before it was released.
A leading manufacturer of servers needed to predict demand for its next-generation high-end server. Given the high cost of individual servers, and the required lead time to acquire the needed components, it was crucial to forecast and quantify demand for the product.
The manufacturer also was interested in understanding how the introduction of a new operating system would affect the decision to buy the new server. Finally, from a marketing perspective, there was an interest in understanding the importance of various product, service and price attributes.
Given the nature of the product, it was inappropriate to randomly sample the general business population. A proprietary technology database containing technographic and firmographic information on North American and European businesses was used to isolate businesses that might be in the market for high-end servers as well as contacts who would be in the position to make decisions regarding such a product.
Screening questions at the start of the survey confirmed that the companies contacted either had a similar product installed or that they would be in the market for such a product over the next few years. Additional screening questions confirmed that the contacts either made or influenced the decision to buy the product.
The survey instrument focused on collecting information about the servers currently installed (brand, number of units, date of purchase), plans to buy servers over the next four years (brand, number of units, time frame), the effect of introducing a new operating system, the importance of various product and service attributes and desired product attributes that might lead to a purchase. Further technographic and firmographic information for each company was already available through the use of the proprietary database. More than 380 telephone interviews were completed in North America and Europe.
Detailed quarterly growth forecasts were provided as part of the deliverables. The forecasts incorporated information directly derived from the survey, including product replacement rates, expansion and upgrade estimations, and adoption rates. The manufacturer combined these estimates with its own in-house demand forecasts to plan production for its new server product in the United States and Europe. The data also let the client forecast changes in market share and forecast expected adoption rates if a new operating system were introduced.
To interpret the importance of various server attributes, satisfaction ratings were refined based on survey results and were used as predictors of overall satisfaction with installed servers in a statistical model. The various attributes were clustered into three groups, namely system performance attributes (such as CPU performance, scalability and partitioning), non-hardware attributes (such as service, ease of management and price) and fault-tolerance attributes (such as clustering and multi-system availability).
The non-hardware attributes were found to be most important, followed by the system performance attributes and the fault tolerance attributes. Service was identified as the most important attribute driving satisfaction. This information was used to drive marketing campaigns and to inform future product development.
Important lessons regarding this type of research included:
· Though secondary research is valuable for providing an indication of overall trends in a market, primary research is often required to pinpoint demand for, and to understand the nuances associated with, specific products.
· Finding the right way to ask a question is critical toward obtaining valid feedback. In this case, rather than simply asking participants to rate how important each product attribute was to the buying decision, the marketer used the indirect method of measuring each attribute’s importance based on its implied connection with overall satisfaction.
· Price, for example, is likely to be scored “very important” by most purchasers in isolation, yet when combined with other attributes for this particular product category, its effect on satisfaction was much smaller than attributes such as service and performance. It is wise to learn about multiple areas from one survey, especially when reaching a highly targeted audience. The survey here was carried out through telephone interviews averaging only 15 to 20 minutes, yet detailed information was collected about a number of areas, driving decisions ranging from production planning to marketing campaigns.
The collective effort here produced invaluable data for the manufacturer to introduce a new product into the market. Market research can help companies understand their customers’ needs, optimize their resources and effectively target the market – especially important in an uncertain economy.
