Why marketing research matters

It is quite normal to consider some types of human activity more noble than others. A career in medicine ranking ahead of one in advertising, for instance. Likewise research into heart disease, or even traffic congestion is considered more important than research into marketing.

Here is a story which illustrates some of the problems with this sort of thinking.

Once upon a time….there was a large company on the Western side of the USA, called Combucon, that provided ambulance services to the public and institutions such as nursing and retirement homes. Combucon largely operated on a subscription basis, where customers would pay an annual fee which enabled them to call an ambulance in an emergency. Similar organisations operate around the world.

Over a two year period Combucon experienced a drop in subscription income. The economy had slowed somewhat, and the company had diverted much of its advertising budget for that period into a single sponsorship event, but overall, as is often the case, the causes of the drop in new subscribers were not clear. A hastily organised sales promotion, offering substantial discounts, had boosted subscriptions somewhat and reduced the proportion of lapsing members but these sales were not profitable given the company’s existing cost structure.

Faced with this drop in revenue and profits the company was in a difficult position, it had recently made a heavy investment in acquiring another ambulance service company in the mid-West. The costs of integrating the two companies systems was higher than expected. Also the Chief Financial Officer of Combucon had made a commitment to shareholders to reduce the company’s debt levels considerably over the next five years.

Combucon’s major cost was its large team of paramedics who drove the ambulances. It was clear to management that cuts in the size of this workforce would have to be made. This brought management into dispute with the union representing these workers. The union threatened strikes, and potential legal action against Combucon if it went ahead with the cuts in paramedics for not delivering the levels of customer service it promised subscribers.

Negotiations dragged on for some months, meanwhile staff morale plummeted, this was evidenced by the 400% increase in the number of ‘sick days’ taken by paramedics. Even without staff cuts Combucon was having difficultly maintaining its previous levels of service. Ambulances were taking longer to get to the scene of an emergency and there was an obvious impact on patient welfare. The company also began to lose some of its contracts with nursing and retirement homes.

Management reacted by scaling back their cost cutting plans and quickly reached agreement with the union. The company largely wore the reduction in profits, much to the detriment of its shareholders, until sales gradually returned to their normal level a few years later. Any longer term impact on Combucon (and perhaps others in the industry) was that investors were less willing to provide it with funds for expansion and improvement of services.

Maureen Forsyth, founder of Combucon, now retired, had intended to make substantial donations to medical research through establishing her own charitable foundation. But the above incident, which occurred around the time she was in the process of setting up the foundation, changed her thinking somewhat. She wanted to lessen the chance of such an event happening again. It had not occurred to her previously that fundamental research into marketing (or industrial relations, or management in general) might also have a positive influence on patient welfare. And might benefit other companies, and their customers, in related industries or even unrelated industries.

www.MarketingScience.info

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