Market Research: Harder, Better, Faster, Stronger
Outlet Store Photo by Retail Point
In reviewing Harvard professor Donald Ngwe’s study on outlet stores and their purpose, this Harvard Business School post highlights the importance of market research when making business decisions.
Ngwe’s research explores why businesses choose to operate outlet stores, even when they may “cannibalize” sales traffic from a company’s main stores.
He found that there were actually two different consumer groups purchasing at retail and outlet stores, respectively. Income, location, and other demographics were essentially the same for both groups. However, outlet stores attracted those who were not as particular about quality and were more willing to travel longer distances for their shopping, whereas retail stores catered to those who followed the newest trends closely. Thus, businesses used outlet stores as a marketplace for their lower-end customers while releasing new designs at their retail stores, and “in effect, the travel distance between the retail stores and outlets [served] as a buffer to separate the two different types of consumers and maximize profit overall.” (Blanding)
Thus, we see that market research is becoming increasingly detailed and meaningful. Even when demographics are completely the same, a difference in one seemingly insignificant aspect of consumer psychographics may create a whole other set of needs that a business must fulfill. In this way, consumer segments are getting smaller and more precise—or, even coalescing and disappearing completely—and businesses must find new ways to recognize these consumer behaviour patterns. Had a business closed its outlet store locations in fear of dividing sales volume, it would have neglected an entire market that actually adds to sales traffic on top of its primary consumer market.
References:
Blanding, Michael. “Why Do Outlet Stores Exist?” Working Knowledge. Harvard Business School, 29 Sept. 2014. Web.
“Demographics vs Psychographics.” Gannon University. Gannon University, n.d. Web.