How reliable is market research data and what can we do about it
Walter White sits in a Denny’s restaurant, across the street from the University of New Mexico in Albuquerque. Sitting alone at the counter, Walter is having his breakfast: bacon, two eggs sunny-side up and hashbrowns. This is the opening scene of the last season of Breaking Bad, an episode that got 2.93 million Americans to watch television on a Sunday night. A week later, that number was down by 21 percent, a fact that got many industry experts to doubt numbers issued by a company deemed infallible for many years, the Nielsen Company.
“Corner the market, then raise the price. Simple economics” Walter White, Breaking Bad
Founded in 1923, Arthur C. Nielsen established his company with the idea of selling engineering performance surveys. Nielsen started monitoring what people listened to on the radio and later began listing its famous Nielsen television ratings. This was possible thanks to the “People Meters,” a device that monitors what entertainment a targeted family consumes. This information allowed the Nielsen Company to establish itself as a monopoly: a company that could literally decide if a television show would continue to a second season or be lost in midnight reruns. Doubts on the company’s insights come mainly from the small sample size Nielsen uses to collect their information: 6,200 household spread across the United States (only recently expanded from 5,000 households). Nielsen says that these households and their watching patterns represent in a good way the United States’ 115.6 million television households.
“I am seriously rethinking my pricing” Saul Goodman, Breaking Bad
The chemicals industry finds itself with a similar problem: market research companies are claiming their small sample size represents pricing patterns reliably. To collect data for their monthly reports, market research companies reach out to a staggering number of companies. Of this staggering number, only a fraction of a fraction responds, most of the time with partial knowledge on the market. The costs of employing the researchers that run these calls keep growing and to compensate, market research companies are basing their reports more on educated assumptions and less on actual interviews. When a report’s structure of assumptions list is proven wrong, companies issue Non-Market Price Adjustments. These adjustments occur on average once every five years and occasionally lead to breaking contracts and lawsuits when deals are based on them.
In the media world, this problem is being solved as we speak. In 2012 Nielsen purchased SocialGuide in a multimillion-dollar deal. SocialGuide is able to read through the social media sites and analyze public opinion on viewing patterns. This knowledge is supposed to get Nielsen out of the old-fashioned television-viewing patterns and into the 21st century. Smelling a change in a monopolized industry, several other companies are making acquisitions in this field, including Twitter.
“How about you pick some of these chemicals and mix up some rocket fuel?” Jesse Pinkman, Breaking Bad
GlowLit is able to paint a picture of global supply and demand, information that manufacturers of raw material crave for. Today, purchasing managers rely on reports made by experts claiming to predict the next rise and fall of resin prices. When oil prices take a wrong turn or cotton crops have an exceptional harvest, these experts find reasons in hindsight why their models went wrong.
Aiming to introduce a new level of certainty to raw materials market research, GlowLit uses crowd wisdom to establish its information. Unlike on other pricing sites, all of this information is anonymously shared by those who know the product best: the purchasing managers. Instead of charging money from buyers of raw material, GlowLit offers them a free platform to compare raw material prices. By collecting data points from small buyers that up until now did not get served by the market research,
Many industries today have a transparent pricing system. A customer that goes into BestBuy can check with a flick of a finger what the new gadget will cost them if they bought it from Amazon. GlowLit will offer that level of service but to purchases worth millions of dollars, in every manufacturing industry, in every corner of the earth.