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Do You Drive by Looking in the Rearview Mirror?

By Evan M. Dudik

Recently I was privileged, or rather tortured, to interview senior marketing executives of a very well known U.S. health plan. To understand why this is repeated day in and day out in corporate conference rooms around the world, and why it is entirely ludicrous, not to mention dangerous to your profitability and sanity, I need to give you a little background.

I was assisting a client sharpen its new Internet-based health improvement program. The value proposition was compelling: the health plan - a large Health Maintenance Organization (HMO) - could radically reduce its medical expenses plus boost its subscriber goodwill by adopting some Internet-based health and wellness tools from my client.

But here's the rub - we're talking Internet here, so naturally we are looking toward future customer behavior in regard to the health behavior. After all, it's not like using the Internet to encourage people to have healthier lifestyles, contact their doctors, get multimedia inspiration to keep with their exercise program or plan delicious, nutritious meals is something this HMO - or anybody - has 42 years of data on. Believe me, this is a program that anybody who uses the Internet would love.

Love it or hate it, the response of this HMO was, and I quote to the very best of my recollection, Your Honor: "We are very proud of being a data-driven company. We don't do anything without reams of data and statistical research.

"Now we are doing work in this area ourselves. We won't be able to make a decision without extensive market research so we can be sure that our investment in this area will pay off. We need more history, more market research to make sure this will work."

Is it any wonder that in the year this happened, this HMO lost money in the high 8 figures? That the CEO held onto his job (and 7-figure salary) by the skin of his shriveled neck?

Yet ask many executives and you will find that they believe and swear by market research. As you can see, I believe that, market research is often an excuse for executives to drive their companies by looking in the rearview mirror. It's a cover-your-rear behavior disguised as prudence.

Seven or eight times out of ten, when I'm called on to help a company improve profits, increase revenues, or expand into new markets I'll be handed a massive market research report on Day One. Often it's a telephone-sized book of telephone interview statistics. Sometimes its transcripts or summaries of focus group sessions. Now and then it's the result of mail-in surveys. Or it's a massive compendium of library research or expensive "custom" reports from any of the huge subscription research firms like Jupiter or Forrester.

Why are they handing me these reports? It's not because they've found the answers to their problems they were looking for. If they did, I surely wouldn't be there. No, they are handing them to me because these $10,000, $20,000, $50,000 reports simply haven't answered the pressing questions that are really on the minds of the executives who commissioned the reports in the first place. You should see the looks of resigned dissatisfaction at the time it took to get the report, the bill they paid and the results they got. Maybe you don't have to - likely as not you've seen the reports I'm talking about.

That's because most market research makes these three fundamental mistakes:

  • It doesn't identify in advance the specific value proposition, pricing, market segmentation or what-have-you the client needs to test. Instead it is usually a fishing expedition of the mind of the marketplace
  • It tries to be quantitative when it should be qualitative, and qualitative when it should be quantitative. For example, a massive telephone survey should never be used to help generate a new strategy for a company or explore new product options - but only to rigorously test a precisely defined pricing, segmentation scheme or feature set.
  • Worst of all, most market research investigate people's past experiences and habits. In the most famous example, IBM rejected xerography when it was offered because its market research asked secretaries (no "administrative assistants" in those days) the question "how many copies do you make?" Remember these are the days of carbon paper and mimeograph machines. Of course this means how many of those tediously-made, and expensive, smudgy carbons and messy mimeographs have been in the secretaries past or history.

For this HMO generating massive data research about people's preferences and habits using Internet-based health information to yield positive clues about what their Internet strategy should be is like asking Alexander the Great in 350 BC to predict the outcome of next year's World Series.

Their answer: "Well, we need to wait till people have more experience with the Internet. Then we can perform our research, back up our strategy with reams of facts and figures." So IBM should have waited too, until people had more experience with xerography? They did. What happened? You know as well as I do: IBM lost millions getting a late start in the copier business. Our HMO friends will wait - and lose their subscriber base to competitors who are willing to look ahead, not behind.

Whose fault is all this? Business is about taking responsibility. In most cases the market research firm did an excellent job of doing exactly what the CEO, president or VP of Marketing asked them to do.

At the same time, market research firms know in their heart of hearts that answers to some market research questions usually breeds more questions - and more business for them. Shame on them; shame on us.

A little example also shows why I believe that the way most market research is used it is as addictive as cocaine. The problem is, it dribbles out its insights. At one air freight company I worked with, a massive telephone survey reveled that the company was viewed by its customers as "mostly like a big bear. We can move the heavy freight but not the letters and small packages. And we're not nimble or flexible. But eventually we get the job done."

Now somewhere in here is some insight - insight about the current market niche for this company - big freight. A little more hidden in all this, but peeking out, are indications that customers turn to this company for the jobs the other guys can't or won't handle. You can almost hear the VP of Marketing calling for another market research study to explore these angles.

How different things would be if the VP of Marketing had called for targeted specific market research to find out:
  • The number of large freight shipments per month to be expected from each industry this company served
  • The on-time delivery requirements for each segment: next day morning, next day noon, next day afternoon, second day, third day
  • How much customers are willing to pay for certainty for time of delivery
  • How much customers are willing to pay for hour-by-hour automated tracking
  • The difference in price customers are willing to pay for later and later freight pick-up times of 5:00 pm, 5:30 pm, 6:00 pm and 6:30 pm.

But then, with these specific questions answered our air freight friends might not need to call on their favorite market research vendor for another year or so. They would have something concrete to go on. And lots of work to do!
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