If you are engaged in strategic planning and/or marketing, you probably get access to a lot of market research data in forms of press releases, articles, reports, and consultants. In fact, very likely you pay for a lot of this business intelligence. As a management consultant, I have not only used a lot of such data I have also generated a lot of it as part of our analysis. This article is written to help you interpret market research data and use it in a way that you can make the best use of it in your planning: (Related article: How to pick a market research firm?)
- If you get any market data for free, read it for entertainment only. Once in a while it is good to entertain yourself with some numbers and forecast.
- Never get married to a forecast. Remember, it is only a forecast, and in most cases, a forecast by a six-year old is just as good as that from Fed Chairman Alan Greenspan. If you do not believe me, just read a market research report from 5/10 years ago and compare them with real data. Similarly, read some of Greenspan's speeches from the past and take a look at where we are today.
- I trust historical data somewhat more than forecasts but the accuracy varies by data type. These are good numbers to work with, but they are rarely 100% accurate.
- Always validate the data from multiple sources. It is OK to talk ranges rather than hard numbers. And always be skeptical of numbers like 156.7 million or 4.7%. Who the hell can know that much about the future?
- Always check the conflicts of interests. Who has done the study? Who has paid for the study? A lot of research and studies are actually published by vendors (Look, the problem is so big, and here is the solution that I have for you). Sometimes they will make up the numbers themselves, on other occasions they will pay a market research firm to make all kinds of wild projections (x% of all emails will be SPAM by 2007, click fraud will drive Google out of business, etc.); so do not take such studies seriously. They fall into the entertainment category.
- Even those studies that are based on interviews from industry leaders are also not to be taken as the final word. More often than not, these people have no clue either about the future, a lot of information simply gets reinforced when someone important says so (if the marketing vice president at Cisco or GE of Home Depot is saying it, it must be right), and market research firms when they hear a lot of divergent opinions, simply make up a number that sort of satisfies everyone. The result: No one really knows.
So is all market data useless?
Well, we couldn't function without the data in the business world. What I am very concerned about are the forecasts and basing your business model on that forecast. What happens if the forecast was phony? Or if things do not turn out the way they were predicted? That is exactly what happened when dot-com companies believed all kinds of unreal projections and based their business models on them.
It is possible to create robust businesses through analysis, creativity, and differentiation, but market forecast should not be the only base of a strategic plan.
Recommended article: How to make the best use of business forecasts?