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Give No Credence to Lemons! Some Lessons in Market Research

Fortnightly Magazine - January 15 1996

in the case of studies that are produced from data captured by checkout scanners at retail stores. Clients understand this fact and make their purchasing decisions accordingly, usually after assuring themselves that the data actually does exist.

When a firm collects market data ad hoc in the course of a job-specific research contract, however, it is a simple matter for the client to define property rights in the data before the fact. Clients always should seek to acquire property rights in the underlying data. In any event, clients should not simply accept assertions that property rights in raw data automatically reside with the research firm in all cases.

Some Alternatives

to Going Outside

Whether outside market research leads to rational decision-making is a debatable proposition, if only because it is inherently difficult to know whether the research itself is valid and reliable. Marketing successes attributed to research are better attributed to coincidence in some cases. Similarly, some marketing failures attributed to poor decisionmaking should be attributed instead to faulty research.

By recognizing the inherent pitfalls of outside market research, managers can discover that it is possible to lower research expenditures and increase market knowledge by performing research tasks inhouse to the fullest extent practicable. The expertise, reference texts, and computer software needed to perform competent work are readily available and relatively simple to apply. Labor-intensive aspects of market

survey work can be contracted to firms that specialize in survey administration.

Moreover, experience teaches that a considerable amount of the market knowledge within an organization goes undocumented and, therefore, is unavailable to the firm's decisionmakers. Firms can develop a wide range of valuable market information by systematically tapping the accumulated knowledge and expertise of their management and staff through the use of "delphic" techniques. Additional market knowledge can be compiled from sales reports and other readily available sources.

Information about competitors' business plans is the most valuable sort of market information. It also is the most difficult to collect and to verify. At the other extreme lie market data that support day-to-day business operations. This information is valuable, not only because it shows a firm's market share to be one number instead of another, but because it provides a focal point for contemplation and reflection. To this extent, a clever and cost-conscious manager frequently can discover less costly substitutes for outside market research.

The Essential Points

Market research is an expensive commodity whose quality and value cannot be determined readily. This opens wide the possibility that worthless research is being passed off as "quality" work product. The asymmetry of information between buyers and sellers of market information gives rise to a "lemons" problem that potentially reduces research fees, and that tends to drive good research from the marketplace. There is, therefore, an incentive for research firms to signal quality wherever it is extant, and to drag red herrings where quality is low and absent.

Experience teaches that there are several potential indicators of research quality. The most powerful indicators are those that show a research firm to be acting consistent with (or contrary