Many marketing research professionals encounter skepticism from executives and other business decision makers when presenting their findings or even whether to conduct research in the first place. This occurs today much as it has throughout business history. However, more often than not, the benefits of the insights and knowledge gained from marketing research more than outweigh the costs of the resources to conduct it.
In my own experience, this was particularly true when considering new business opportunities in international markets. A firm should be especially interested in conducting marketing research when the market territory is unknown. When the product is still relatively new, it makes the case even more compelling.
In this article, I’ll discuss three examples of international business development opportunities in the telecommunications industry from the 1990s. These examples may now be a bit dated, but the lessons still hold true today: there’s substantial value in doing marketing research and a company faces huge potential financial loss by failing to do so.
There’s substantial value in doing market research and a company faces huge potential financial loss by failing to do so.
Background – Cellular Telephones and Cable Television in the 1990s
As ubiquitous as cell phones are today throughout the world, it’s easy to forget that it was once a nascent industry. In the early 1990s, there was certainly optimism from telecom executives regarding great potential in the product but it was still very unclear how large and how profitable cell phones could be. My employer at the time, SBC1, was looking for opportunities to expand its cellular telephone businesses. However, there were limits on the opportunities to grow in the U.S. because of restrictive FCC licensing requirements for wireless airspace and the number of operators allowed in a given city or region. On the other hand, there were many more international opportunities.
In the early 1980s, many countries had granted only a single cellular license and it was usually given to the incumbent wireline telephone company. By the 1990s, however, many countries began to recognize the economic importance of competition and started to offer second cellular licenses to the highest bidders, subject to reasonable conditions, establishing the technical and financial credibility and feasibility of the bidders.
Another industry held promise for international opportunity—cable television. In the 1970s and 1980s, households in the U.S. began subscribing to cable television at an increasing rate. By the 1990s, the technology of providing cable television allowed these companies to begin offering wireline telephone service in competition with incumbent telephone companies. SBC was an incumbent wireline telephone company and began to lose wireline telephone customers to the cable companies since these new competitors offered lower prices for their telephone service. While SBC was facing new pressure from domestic cable companies, however, new international opportunities presented themselves to SBC. In many countries, the opportunity to buy or merge with a cable company offered SBC an avenue to be the competitor taking customers from the incumbent telephone company. While SBC might lose customers at home in the U.S., it could replace or expand its business by growing internationally through cable television.
Both industries, cellular and cable television, were poised to grow substantially in the next decades. The questions facing SBC in evaluating these opportunities were how big and how fast these markets would grow, how much they should be willing to pay for second licenses, what types of households and businesses would most likely buy from a new provider and how much these new customers would be willing to pay. These are, of course, the types of questions that good marketing research can help answer.
Marketing Research and Demand Analysis
My job at SBC during this period was to serve as the director of corporate demand analysis. My team was responsible for conducting research to help answer the important questions SBC faced when exploring these international opportunities. We worked closely with SBC’s in-house marketing research professionals to design research studies to help answer these types of questions:
- What is the long-run household and business penetration rate for these new services (cellular and cable television) in a particular market?
- How much are customers willing to pay for these new services?
- How likely are they to buy these services from a second provider?
- What types of customers are most likely to buy these services (income, ethnicity, geographic area, household size, etc.)?
To conduct our research, SBC’s demand analysts and marketing researchers traveled to a particular country, and then selected and hired a local marketing research firm. The local firm was essential to understanding local culture, offering feasible survey methods, helping with questionnaire design and interpreting results. After the survey data was collected, SBC’s demand analysts and marketing researchers would analyze the results and present findings to SBC’s executives. We also worked closely with SBC’s international business development teams by producing market forecasts and delivering insights on the market in preparing the business plan.
To illustrate the importance of international marketing research, I’ll relate three stories of our experience at SBC. The first serves as an example of why pursing a business opportunity without conducting research can be risky for a firm. The second example shows why business executives and decision makers should at least consider the information a credible marketing research team can provide. The third example shows why credible marketing research can help a firm avoid making investments in what turns out to be a poor opportunity.
First Story – United Kingdom
In the early 1990s, SBC purchased a large cable television provider in the United Kingdom. The company primarily served customers in the middle part of England. The purchase was based on the assumption that demand for cable television in the United Kingdom would mirror that of the United States. As you can see from the chart on the left, cable television household penetration in the U.S. had increased substantially from the late 1970s to the early 1990s. If cable television was as popular in the United Kingdom as it had been in the U.S., the market was set to explode.
The explosion never happened. As also illustrated in the chart, the demand for cable television has not approached the level experienced in the U.S. The assumption that the demand for cable television in the United Kingdom would be similar to the U.S. was not based on marketing research conducted by SBC.
SBC learned an important lesson. Even though the United Kingdom has similar language, culture and incomes to the U.S., the tastes for cable television are widely different. To enter an international market, even a familiar one, without conducting marketing research increases the risk of misunderstanding and miscalculating the financial opportunity.
Second Story – South Korea
In the early 1990s, SBC was evaluating an opportunity to join a South Korean cellular operator. In this case, SBC conducted marketing research to help measure the potential value. The research determined that there was a huge opportunity in the South Korea cellular market. The research team forecasted early and significant growth in the number of people who would buy cellular service. The results seemed too good, however, for some executives at SBC. To paraphrase, one executive incredulously said, “You mean to tell me that South Korea will have higher cellular penetration than Dallas, Texas?!”
Fortunately, SBC accepted the results and proceeded to invest in the opportunity. Good thing they did. South Korea has indeed been a market leader throughout the history of cellular market penetration (see chart on the bottom of the previous page). The investment was very lucrative for SBC.
The lesson here is that, even though the marketing research seems to contradict consensus opinion, the research should be evaluated on its own merits. Was it conducted objectively? Did the researchers take care when analyzing the results? In this example, the research was valid, the results were proven historically and the company benefitted by paying attention to the researchers.
Third Story – India
In the mid-1990s, SBC conducted marketing research in India. SBC was evaluating an opportunity to bid on a cellular license as the second operator competing against the incumbent provider. Market penetration of cellular service had been slower in India than other developing countries but SBC wanted to investigate directly to see for themselves.
Our marketing research concluded that cellular market penetration was indeed going to continue to lag other developing countries. SBC, in following the research, concluded that the opportunity was not going to be a strong financial gain, so it passed on the bid. A member of the bid team told me, “That was the best money we’ve ever spent on market research. The executives were determined to bid on India, but the market research told them to back off. Thanks for the great information!”
As shown in the chart below, cellular market penetration today continues to be among the lowest internationally. The marketing research results were validated historically and SBC avoided a costly mistake by heeding the research results.
To enter an international market, even a familiar one, without conducting market research increases the risk of misunderstanding and miscalculating the financial opportunity.
In this short summary of my experiences with using marketing research, I’ve tried to demonstrate the value of conducting research, especially in international markets when conditions are unknown. It is well worth the time, money and effort to use marketing research to investigate the potential opportunity of an unknown market with new products and/or new competitors. I’ve learned critical lessons about the value of doing research, doing it well and paying attention to the results. I’ve had experience with conducting useful research only to have it fall on deaf ears at the executive level. I’ve had experience with decision makers asking for information after the fact...when it’s too late to conduct marketing research and learn anything useful. I urge businesses and researchers to conduct marketing research, do it well and pay attention to the results. Decisions based on faulty or missing information are decisions that can’t be undone—to the company’s loss.
1 SBC, originally Southwestern Bell Corporation. SBC later merged with Pacific Bell, Ameritech, BellSouth and AT&T. The company is now known as AT&T.