Market research is (often) worthless. Here’s why.

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Ian Lurie Dec 13 2010

This post is by Bruce Lee, marketer and marketing writer.

Here’s the short version: Knowing that someone has disposable income doesnʼt tell you what they want to spend it on.

I used to work for a (retail) company that had fairly deep pockets. Occasionally, we would reach into those pockets to buy market research.

Our database was scrupulously maintained, and could tell us basic stuff about our customers, such as name, address and complete purchase history. The market research companies we hired promised to expand on that data and provide rich demographic information about the folks in our database.

You can guess the next step. In strict adherence to the “birds of a feather flock together” model of marketing, the research company would then offer to sell us information (names and addresses, mostly) of people who were just like our best customers, with one distinguishing characteristic: they had not yet made a purchase from us.

Makes sense right? And especially tempting since, like nearly all retail businesses, we spent such a seemingly inordinate amount on trying to attract new customers.

Just one little problem: It didnʼt work.

For our tests, we came up with a very attractive offer and sent it out to three groups: Past customers; people who had a similar profile to our customers but had never purchased from us; and an equal number of randomly-selected households. All were within the same geographical area. Hereʼs how it shook out:

conversion rate

The results were the same in three different trials, using three different profiling techniques.

I have mixed feelings about this. All thinking people should.

As a marketer, I was of course disappointed by the results. Everyone in business is always looking for the straightest and truest path to new customers. Intuitively, we are attracted to the concept that past behavior can reliably predict future behavior, and, to a degree, this is true. In our case, for example, we could reliably predict that people who were previous customers had a much higher likelihood of buying from us again, compared to folks who had never before made a purchase from us.

I’ll say it again, with feeling: Knowing that someone has disposable income doesnʼt tell you what they want to spend it on.

What we couldnʼt seem to find, however, was an accurate profile of those individuals who, while not having yet shopped with us, still had a higher predisposition to do so.
The reality is that people are not that predictable regarding at least some activities in which they have never previously participated. In our case, just because someone had a profile that was in many ways very similar to that of our best customers, didnʼt mean he had any higher likelihood of buying high-end electronics.

Which, if you think about it, makes perfect sense in light of our everyday experience. Just because someone has disposable income doesnʼt tell you what they want to spend it on. Skiing is a relatively expensive activity. Yet we all know wealthy people who wouldnʼt dream of going to the slopes and poor students who somehow manipulate their budgets to indulge their hobby. Itʼs the same with all sorts of non-commodity goods and services: wine, boats, concerts, travel…even relatively inexpensive activities such as movies or attending sporting events.

So, while as a marketer, Iʼm faced with a remaining challenge, as a member of the human race, Iʼm delighted that each of us is ultimately unpredictable – similar in many ways – but unique.

tags : conversation marketing

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6 Comments

  1. Good read, Bruce. Sorry you had to pay in order to share such insight, but being able to conclude “X doesn’t work” is still a successful experiment. It almost makes me wonder if target market is more of a post hoc illusion.

  2. I appreciate this anecdotal experience, but I am not so sure it always applies.
    You need some understanding of a company’s target demographic in order to develop a marketing plan that attracts new customers. I’m probably better off advertising for Tofurkey in Vegetarian Times than Guns and Amo, even though there may be the odd gun enthusiast who enjoys Tofurkey or Veg Times readers who don’t.
    I know that’s an extreme example but you can probably find plenty of more subtle cases where understanding who a company’s average customer is should influence who they market to.

  3. I guess thats debatable. I agree that market research might not be the best investment for all fields but there are several that consumer research is worth its weight in gold

  4. Dean

    Yes, I think Meredith is right. This example only shows that market research is worthless when it asks the wrong questions. Golf-playing and Nordstrom-shopping are likely to be incidental to the purchase of high-end electronics. You might have picked up a better understanding of which leads are likely to spend their disposable incomes on expensive TVs by asking customers which tech sites they read or which mobile phones they own.

  5. Bruce

    I also tend to agree with Dean and Meredith, but I’d like to salt the soup a bit more. In the case cited in the article, the retailer alread had a very expansive advertising presence in the marketplace. There was very little chance that anyone who was interested in high-end consumer electronics was unaware of the presence and position of the retailer. (Certainly anyone who was as much of an enthusiast to, say, subscribe to a tech or hobbyist site.) So…the reason we experimented with this idea was to determine if there was an alternative, supplemental form of advertising that might trigger a buying response. With that intention, we were kind of forced to look for less apparent and obvious characteristics of potential customers.

  6. I find it odd that you chose nordstrom, eddie bauer and “likes to play golf” as criteria for finding customers who wanted to buy high end electronics. Wouldn’t it have been a better option to research other mail order electronics companies and then make offers to the ones who have bought there instead? Or, in the very least choose verticals that are more closely associated with electronics than something random like “golfing”. Maybe even doing something like “likes Jazz” may illicit more of response than some random hobby.
    3% conversion for a direct offer to existing customers is absolutely average at best.

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