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Monday, May 19, 2003

Behavioural Marketing

Management consultant Jo Owen writes in the Independent on Sunday saying that the customer is not always right, and the implications this has for market research. Take the first of her reasons, that customers often do not know what they want:

We did not know we wanted the internet, frappuccinos, mobile phones or MP3 players until they were offered to us. [Market] Research can inhibit innovation. Try the following questions:

"Do you want to pay £2 for a coffee instead of getting it for 50p elsewhere?"
"Do you want to pay £10 to send your mail instead of 28p?"
"Do you want your airline to cancel its inflight service, reduce seat size and pitch, fly from secondary airports at awkward times, and give you neither a ticket nor a seat reservation?"

These questions would have led to dumb disbelief on the part of the consumer. And in the process Starbucks, FedEx and discount airlines would never have got started. In each case they were taking on entrenched competition that should have known what their customers wanted. But the entrenched competition were asking the wrong questions, getting the wrong answers and missing the growth markets. No manager is ever fired for missing a new market. Instead, whole divisions are fired when senior management belatedly discover that upstart competitors have taken their market from them.

Owen goes on to talk about the faint praise of customer feedback ("we give three out of five for barely adequate service") and how customers try to be rational ("we can justify buying sports cars for the traffic jam"). This is not new, I think. Economists have known about the limits of surveys for years, and generally refer to rely upon observing actual behaviour--revealed preference. Owen is aware of this, and is trying to convince managers, who often feel complacent after seeing simple feedback data, to take the problem seriously. Her recommendations are well worth reading.