Finding a Place for Market Research in a Big Data, Tech-enabled World

In the annals of product launches, the advent of 3-D TV won’t go down as a high point in consumer love at first sight. The product first drew hype, then modest sales. But after five years on the market, the format has stalled. One mass-market manufacturer, Vizio, announced with the new year that it has pressed the pause button on 3-D. Major content providers ESPN and the BBC have discontinued 3-D TV program development.

The industry had trumpeted 3-D as the next revenue boon. Stirred by the 2009 success of the science fiction action film Avatar — which was released in theaters in traditional and 3-D formats, and became the first movie to gross more than $2 billion — a considerable investment was made in adapting 3-D for home viewership. Now its failure is raising questions about the state of market research. Has serious market research fallen out of favor? Are companies still willing to invest the kinds of resources in ambitious quantitative and qualitative research necessary to unearth meaningful answers?

“It is a sad state of affairs. Market researchers were the ones holding up the light so we could see an otherwise dark world,” says Wharton marketing professor Peter Fader. “They used to be leading the way, from the 1950s, 1960s and 1970s on, at giving us a window into customer preference. For resulting managerial decisions, it really was a vital function for so many companies. Today it is in the back seat, if companies are doing it at all.”

What happens more and more now, Fader notes, is “people say, ‘Let’s just try stuff and see what works.’ It’s a widely held belief that it has become much easier to test things in market [i.e., by saying,] ‘Let’s put out our concepts and see what gets clicked on the most.’ That can help you determine a winner, but it doesn’t help you design what would have been the best. By doing careful research and determining the underlying drivers that cause people to click, we can develop better products and services.”

Unprecedented access to big data does nothing to negate the need for deep market research, according to Wharton marketing professor Eric T. Bradlow, who along with Fader directs the Wharton Customer Analytics Initiative. “Can you possibly predict what people are going to do?” he asks. “Yes, you can. However, the science of psychology — why people are doing what they are doing — in traditional marketing research provides a great complement to what can be measured.”

3-D: Dead, or Just Taking a Rest?

Analysts and trade press attending the International Consumer Electronics Show earlier this year in Las Vegas delivered last rights to 3-D after Vizio dropped 3-D TVs and instead began promoting ultra-high resolution “4K” television sets. Indeed, U.S. sales figures for the past several years look grim: In 2009, the year of 3-D TV’s launch, 600,000 3-D-enabled televisions were sold to dealers. Sales doubled each year thereafter, and industry watchers declared victory. But after reaching 4.5 million units in 2012, the Consumer Electronics Association estimated a drop to 3.7 million products sold for 3-D TVs in 2013, and predicted further softening for 2014.

Vizio’s abandonment of 3-D comes weighted with extra significance. With its competitive pricing and availability in big-box stores, the brand is seen by some as a barometer of mass sentiment. What went wrong? The industry’s failure to match pricey new hardware with a robust pipeline of 3-D content was surely one factor. Customers and pundits strongly disliked having to wear glasses to see 3-D effects, while some complained of eye strain and headaches. Some have also suggested that since many viewers multi-task while watching TV, constantly checking smartphones and other devices, they felt constrained by having to wear glasses. In fact, Vizio is now developing a glasses-free 3-D product.

But perhaps 3-D TV was more a piece of a market niche strategy than a response to customer needs and desires. “The TV companies did research [on whether] 3-D was the next wave, but launched before there were unified standards on the technology. Sony had one standard, Panasonic a second and Samsung had yet a third,” says P.J. McNealy, CEO and founder of consulting firm Digital World Research. Meanwhile, Japanese TV manufacturers were losing market share to Korean companies driven largely by the currency advantage of the won over the yen, he added. “Further, Samsung and LG were taking big chunks of market share in the LED/LCD TV market, and neither Sony nor Panasonic could truly challenge them. Hence, 3-D: Couple it with the box-office success of Avatar, and the [companies'] position became to ride the wave, or create a wave of demand for 3-D TV that [eventually] fizzled.”

As mid-20th-century Wharton marketing pioneer Wroe Alderson said in a 1954 lecture: “Buyers, no less than sellers, come into the market to solve problems.” Perhaps 3-D TV was the answer to a problem no buyer had.

Defining Market Research

Why didn’t Vizio pick up on users’ disdain for glasses before it launched 3-D? Vizio now acknowledges customer aversion to the use of glasses in 3-D in a home setting, but says the only market research it did was post-launch. “We can’t actually do it prior to the launch because consumers don’t have the product,” says John Hwang, senior product manager for Vizio’s HDTV category. “When we first launched 3-D, there was no consumer data. A lot of data was pulled from the movie experience, but movies are different.”

Internally, Vizio had concerns about the use of glasses, but the company has a fast turnaround for product development. “The only consumer test group we have when we build product is within the company,” Hwang notes. “The idea is to get the product very quickly to market. We have a very short development cycle, and for us to wait six months to a year to get that data — it’s too long.”

Initial reception among “techies” was strong, Hwang points out. It was after the product began to sell in the mass-market segment that it ran aground. “We got positive responses in the first year or first couple of years. But after a while they started using it less and less, and it was the everyday-use case scenario where 3-D failed.”

Some experts suggest that earlier comprehensive market research could have saved the industry some blunders, and moved it more quickly toward developing a new technology customers wanted, or at least liked. But do customers know what they want? Fader says that ironically, an anecdote from one of the most stunning successes in consumer electronics history has sent exactly the wrong message about the importance of market research. “Too often we are counting on a visionary, a Steve Jobs, who really set the market research industry back years because he was so disdainful of it,” Fader notes. “[Jobs] said, ‘I am going to tell people what they want.’ And unfortunately, he was right, or maybe he was just lucky. In that one specific test study, it might have been a fair point, but for most companies most of the time, emulating Steve Jobs — having that kind of brilliance, or arrogance — isn’t going to work. It is going to take more thoughtful data-driven approaches.”

Part of the problem with market research today is lack of a clear definition. Customer loyalty programs and online check-ins are hardly tools for real insights, Fader says. “I have a fairly crisp definition, which is assessing consumer preferences and attitudes. Basically you are doing surveys about what customers are thinking and making decisions on that basis. I don’t count any of the big data or data mining. That’s not market research — just the opposite. Market research becomes part of big data — let’s marry what people are doing with what people are saying.”

The question of how one defines the work aside, the market survey industry has held up in terms of revenues, at least somewhat, according to research complied for the 2013 edition of the annual Honomichl Global Top 25 Report. Despite the lackluster economy, aggregate revenues of top firms of $8.8 billion amounted to a 2.6% increase over 2011, or 0.5% after adjustment for inflation. But Honomichl’s broader look at the industry released in June found a weak, downward trend in activity. Why? “It could be that the mining of social media websites has come to be preferred for ‘insights’ regarding consumers’ whims and fads, in lieu of more expensive focus groups,” the report concluded.

There has been much consolidation in the industry, and more work is being done by large consulting firms and less by boutique businesses with a sole concentration on market research. A lot of companies now are “basically blown away by the big firms, the McKinseys and Booz Allens of the world, who have said we can do all that for you and a lot more,” Fader says. “In some cases they are doing their work reasonably well and integrating it with broader strategic efforts, but in some cases corners are being cut. Technical analysis is not being done well — the availability and representativeness of the samples. People are playing fast and loose with some things. These market research firms were doing fewer things and doing them really well. But it’s too hard for clients to resist the siren call of the consulting firm.”

Wedding Big Data and Traditional Market Research

And yet, in some ways this is a time of unprecedented potential for the field. The merging of traditional market research wisdom with the raw muscle of big data could yield quantitative and qualitative riches, many say. But first there is a lot of work to be done. “It’s a really exciting time. A lot of data out there can be mined to gain insight into customers, their attitudes and what they are thinking,” says Wharton operations and information management professor Shawndra Hill. “That said, while mining the data has come a long way from where it was 10 years ago, we still have a long way to go to … knowing the true meaning of what people are saying."

Nothing beats knowing why people make the choices they do, Hill adds. “These two can work together to find patterns, then market researchers test these hypotheses. Someone like me who does machine learning [isn't] really focused on human behavior and why this is happening. So you need both.”

In addition, different directions suit different industries, Hill notes. “If success can be measured by clicks or online purchases, where there is a lot of data, the industry is more likely to believe in it,” she points out. “Online advertising is a prime example of where it is all data, all prediction. I do a lot of work in TV, and the networks now have teams of data analysts. But there is still a lot of market research.”

One good example of an industry integrating big data and market research, says Bradlow, can be found in consumer package goods companies like Procter and Gamble. “Even Wal-Mart is spending lots and lots of time doing analytics and data mining, but they have not gotten rid of ethnographic studies, surveys and consumer psychology. In my view, you cannot ignore the analytics that are available through tracking. But there is still nothing better than understanding the psychology of the consumer, and that’s harder to get.”

What are likely further areas of development? “Now that you can measure this stuff, it’s about time and geo-location,” Bradlow notes. “In real time, when you are walking past Macy’s, can [marketers] deliver the right message based on your location? To me, that is the ultimate: delivering the right product to the right person at the right time. That’s why you see so many people investing in mobile to deliver products and discounts at the time of consumption. I think there is a great opportunity there, and I don’t think we are there yet.”

Further layers of data — being able to track eye movements across a computer screen or following circulation patterns through customers’ mobile phones during a physical visit to the store — could raise privacy concerns. But for the marketer, they are advances that contribute toward a total impression of how customers behave and why, according to Wharton marketing professor Barbara E. Kahn, who is also director of the school’s Jay H. Baker Retailing Center.

The ultimate goal, she notes, is being able to follow the entire arc of the customer journey, from the initial impulse through the deliberative stage, and to purchase. “It is a more comprehensive slice of how consumers are making decisions,” she says. “If someone is not buying one of the new TVs because they never saw it, that is different than if they saw it and decided they didn’t like it. Depending on where they fell out [of the purchasing process], the remedy is different. Traditional market research is obviously interesting. But some of this other stuff gives new insight and new possibilities.”

Knowledge@Wharton