Marketing Research 12th Edition

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PART II SECTION A
TEACHING NOTES FOR CHAPTERS
CHAPTER FIVE

SECONDARY SOURCES OF MARKETING DATA

Learning Objectives

• List the various secondary data sources.

• Discuss the uses of secondary data.
• List the benefits and limitations of secondary data.
• Describe the internal sources and forms of secondary data.
• Explain the value of demographic, economic, and social statistics contained in census data.
• Explain the importance of the North American Industry Classification System.
• Discuss how to appraise secondary sources.
• Describe applications of secondary data.
• Discuss the sources of secondary data used in international marketing research.
• Explain the problems associated with secondary data in international marketing research.
• Discuss applications of secondary data in domestic and international marketing research.

Teaching Suggestions

In one important sense this chapter and the next one represent a transition, from the introductory planning
and design issues, to the specific activities of collecting and interpreting data. The objectives for this chapter
should be:

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a) Introduce students to the wealth of available data so they can see the necessity of beginning any research
study with the pursuit of readily available secondary data.

b) To understand how secondary data can be used to provide answers to marketing questions.

c) To introduce students to the NAICS system that has replaced the old SIC system.

c) To recognize the limitations of secondary data.

Of course, these skills will be enhanced in subsequent chapters which discuss the collection of primary
data. Knowledge of the difficulties of collecting data in general will give a further appreciation of the
deficiencies of secondary data. In general, the rule for using secondary data should be: don’t ignore it, but
don’t rely on it completely.

In addition to the questions for discussion, some useful devices for achieving the objectives of this
chapter are to introduce the new North American Industry Classification System (NAICS) to the students,
highlight its benefits and to briefly refer to the problems of the old SIC system. A brief FAQ on the NAICS
is provided in the next page for instructor’s review. Using the team projects as a vehicle to familiarize students
with the new NAIC system, instructors could provide the Web addresses under the “Resources to Students”
section of the FAQ and set them the goal of obtaining information about the differences between the SIC and
NAIC systems. The project and subsequent discussions should focus on the benefits provided by the new
system when compared to the old. Providing the Web addresses from the FAQ to the students helps them to
easily identify sources of secondary data. This works well as the student teams are usually just beginning this
stage.

Of particular importance is Figure 5-1, which is an excellent resource for understanding the process of
secondary data collection. It is also important to understand the importance, benefits, sources, and
applications of secondary data research. In light of the current advances in technology applications in the
area of marketing research, the need for discussing computer retrievable databases becomes important. The
instructor may also wish to discuss census data (Figure 5-3 explains the geographic subdivisions of a MSA)

Since the SIC information replaced by the NAICS data in this edition of the text book, instructors may
want to focus their discussions more on the coding structure, applications, and benefits of the new NAICS
rather than the old SIC system. However, in order that the students appreciate the true benefits of the NAICS,
the instructor may still want to discuss the problems of the SIC system and highlight how NAICS solves the
same. As part of the class preparations, it is recommended that the instructors visit the Web sites provided in
the FAQ and identify a couple of examples that highlight the problems of the SIC system and the solutions
provided by the NAIC system. The instructor may quote the weaknesses mentioned below and compare it
with the NAICS.

The instructor may want to spend quite a bit of time on the strengths and weaknesses of SIC data. Some
of the more obvious weaknesses stem from the fact that establishments are allocated to 4, 5, 6 or 7 digit
categories based on their major activity or primary product. This rule creates problems when, as is often the
case, an establishment has multiple activities or products. Further, the most readily available data is at the 4-
digit level which encompasses some very broad industry categories, i.e., SIC 3312 is blast furnaces, steel
works, and rolling mills. Other problems are the slowness of the revisions to categories, the delays in
reporting and the reliance on supply factors for defining the categories. Usually a market defined according
to similarity of supply is smaller than one that encompasses all the ways a customer can satisfy a need.

NAICS AND SIC

The North American Industry Classification System (NAICS) has now officially replaced the U.S.
Standard Industrial Classification (SIC) system. The NAICS provides a consistent system for economic

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analysis across the three North American Free Trade Agreement partners – Canada, Mexico and the United
States.

The system was developed by the U.S., Canada, and Mexico to provide comparable statistics across the
three countries. For the first time, government and business analysts will be able to compare directly
industrial production statistics collected and published in the three North American Free Trade Agreement
countries. NAICS also provides for increased comparability with the International Standard Industrial
Classification System (ISIC, Revision 3), developed and maintained by the United Nations.

The 2002 edition includes substantial changes in the construction and wholesale trade classifications,
and modifies a number of retail classifications. NAICS also reflects, in a much more explicit way, the
enormous changes in technology and in the growth and diversification of services that have marked recent
decades.

A key feature of NAICS is the revisions for the Information sector. A few of the new and important
industries created in this section include: Internet service providers and Web search portals, and Internet
publishing and broadcasting. Also included in the Information sector is electronic shopping and electronic
auctions.

NAICS provides a consistent framework for the collection, analysis and dissemination of industrial
statistics used by:

• Government policy analysts

• Academics and researchers
• Business community and
• Public.

NAICS will be reviewed every 5 years so that classifications and information keep up with the changing
economy.

NAICS FAQ

Q.1 - What is SIC?

The Standard Industrial Classification (SIC) system is a series of number codes that attempts to classify
all business establishments by the types of products or services they make available. Establishments engaged
in the same activity, whatever their size or type of ownership, are assigned the same SIC code. These
definitions are important for standardization.

The SIC codes were developed to facilitate the collection, tabulation, and analysis of data and to promote
comparability in statistical analyses.

Q.2 - What is NAICS?

Beginning in 1997, the SIC will be replaced by the North American Industry Classification System
(NAICS). This six digit code is a major revision that not only provides for newer industries, but also
reorganizes the categories on a production/process-oriented basis (SIC used a mixture of production-based
and market-based categories).

Q.3 - Who developed the NAICS?

The new NAICS system was developed jointly by the U.S. Census Bureau in cooperation with the
U. S. Economic Classification Policy Committee, Statistics Canada and Mexico's Institutio Nacional de
Estadistica, Geografia e Informatics. This new, uniform, industry-wide classification system has been
designed as the index for statistical reporting of all economic activities of the U.S., Canada, and Mexico.

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Q.4 - What are the features of NAICS?

A summary of NAICS features include

• Common code between U.S., Mexico, and Canada.
• Compatible with 2-digit level of ISIC of the United Nations.
• More industries and distinctions.
• Emerging high-tech industries and service industries included.
• New Information Industry.
• New 6-digit codes instead of 4-digit as in SIC.

Q.5 - What is the hierarchical structure of NAICS?

The NAICS hierarchical structure is:

XX Industry Sector (anticipating up to 20 industries)
XXX Industry Sub-sector
XXXX Industry Group
XXXXX Industry
XXXXXX U.S. (Canadian, or Mexican) National Industry

Q.6 - Why use NAICS and SIC?

Although the purpose behind the creation of the NAICS classification system is specifically for
governmental regulations and census reports, this system can be implemented in any business to classify
customers and enable users to gain a clear perspective on target markets. This is one of the most common
uses of the NAICS and SIC in the general market.

For example, if your business sold equipment specific to dry cleaners it would be valuable to have
a list of all the dry cleaners locally or nationally. To do this, you would look up the NAICS code specific to
dry cleaners in a NAICS database (such as the NAICS to SIC InfoBase), then using a business database (such
as PhoneDisc) you would get a list of all companies based on that code.

Whether it's statistical analysis, market research, or sales leads NAICS and SIC codes provide a
valuable tool to get the information needed to succeed.

Q.7 - Who uses NAICS and SIC?

The following are just a few examples of who uses the NAICS:

• State and Federal agencies.

• Census Bureau, for economic census reports.
• Attorneys for filing required government documents.
• Mailing list publishers for classification.
• Banks for evaluating loan applications.
• Marketing agencies/departments for targeted marketing.
• Market researchers.
• Insurance companies for accessing risks.
• Job service agencies for assisting applicants seeking employment.
• City planning and zoning boards for monitoring compliance with zoning requirements.
• Environmental protection agencies for monitoring emissions.
• Power and utility companies for projecting usage needs.
• Publishers for soliciting advertisers based on classified readership.
• Trade associations.
• Business, for sorting non-statistical articles and reports on industry and products.

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 • Economists.
• Planners.
• Statisticians.
• Database producers for searching by industry.
• Many others.

Q.8 - Where do I find NAICS lists and database products?

www.naics.com

Q.9 – Is there any free version of the NAICS to SIC cross- reference tables?

Yes, please check the in the following Web site.

http://www.naics.com/files/naic2sic.htm

Resources to Students:
http://www.census.gov/epcd/www/naics.html
http://www.census.gov/epcd/www/naicstab.htm
http://www.naics.com/
http://naics-codes-to-sic-codes.com/downloads/
http://www.naics.com/files/naic2sic.htm
http://store.yahoo.com/naics/
http://www.siccode.com
http://www.sba.gov/size/SIC2NAICSmain.html
http://listsareus.com/business-sic-codes-u.htm
http://www.sic-naics-codes.com/

The instructor may also wish to discuss to sources of secondary data in international marketing research.
The problems encountered in secondary data collection in the international context, data comparability, and
applications are areas that could be discussed in this section.

Questions and Problems

1. A variety of useful secondary data is available to someone deciding where to locate a store to sell
personal computers and software. From studies by manufacturers and distributors, it should be possible
to determine the trading area and the profile of the target market (this will depend on some extent on
whether the store is selling primarily to large commercial users). The next step is to identify and locate
the potential competitors in the broad geographic area. Here the Yellow Pages can be very helpful. As
this is a rapidly changing field new entrants will also need to be identified. Supplier salespeople are a
good source. The location should be as far away from competitors as possible and convenient to large
concentrations of buyers. The latter assessment can be aided with Census data on manufacturing and
service establishments in census enumeration areas, coupled with a directory of local businesses. A
service like PRISM could be used to identify zip code areas with reasonable concentrations of customers
in the target category.

While the logic is the same when locating a convenience copying center, the analysis should take into
account the difference in shopping behavior - and especially the need to build repeat business by catering
to a few users groups or businesses. The profile of the target markets will be different, for example, small
businesses and universities and colleges are attractive markets. It should also be desirable to have data
on traffic, density and movement which could be provided by the local planning authority or urban transit
agency.

2. The first question is, what kinds of secondary data should be available for the market area of each
proposed location? Because of the split in the type of patrons, relevant data for the area would include:

a) buying power as a function of disposable income and population,

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 b) mix of apartment versus single home dwellers in the population.

c) economic health of the area, including plans for expansion or contraction of the area, and post
sensitivity to economic downturns,

d) building activity, encompassing renovation and extensions as well as new home or office building,

e) Competitive presence, performance (i.e. ability to satisfy present needs of area) and future plans;

f) traffic counts and likely changes in road networks that would affect traffic passing near the proposed
site.

3. Industry associations are one method of obtaining direct data. There are consulting firms such as Frost
and Sullivan and Predicasts who conduct industry studies for clients. These types of firms can be
contacted for industry information.

In order to answer this question, students will either have to contact firms in each of the six industries
and ask for the names of the industry associations or go to the library. The associations for each industry
can then be ranked by the students in terms of their usefulness for providing secondary industry data.
Students might also be asked to contact several industry associations to see the type of secondary data
that is available.

4. Data on beer consumption can be obtained-through a combination of government services, industry

associations and by contacting firms in the industry. The difference between per capita consumption in
a particular state or province versus the country as a whole can be explained by demographic variables.

5a. Since Educational Edge is a small company with limited resources, assessing market potential through
a marketing research study is out of question. Also the product is a not an innovative product and hence
there should be no dearth of secondary data. Secondary data are data collected by persons or agencies
for purposes other than the solution of the problem at hand. The examination of the secondary data may
provide enough information to actually resolve the problem investigated. Therefore, it is better for
Educational Edge to go in for secondary data to assess the market potential for the erasable
transparencies. In case, any new idea is generated, it can be tested later through primary research.

The bulk users of erasable transparencies would be in Schools, Universities and Corporations. While
schools and universities will use the transparencies for teaching and presenting purposes, the
corporations will tend to use transparencies predominantly for presentation purposes. Educational edge
will be interested in obtaining a list of educational institutions and corporations so that it can devise a
strategic plan and decide on the market segments.

Educational edge can obtain the relevant information about the educational institutions from government
published sources. The number of teachers in any geographic segment can be obtained from the census
data. Using rule of the thumb and experts’ advice, the number of transparencies per teacher for a time
period is calculated, multiplied with the total number of teachers and hence the potential in the
educational sector for a time period is calculated. These figures can be cross-checked using alternate
methods. Educational edge can identify a competitor and arrive at the competitor’s sales from their
annual report. Using the competitor’s market share, the market potential can be calculated. Also, trade
association journals can give an idea of the major players, their share, market growth rate and market
potential. Similarly, US Census of manufacturers could give SIC related data for Educational Edge to
assess the industrial market potential.

b. Market segmentation is required by businesses seeking to improve their marketing efforts. Effective
segmentation demands that firms group their customers into relatively homogeneous groups.
Educational edge can use the North American Industrial Classification System (NAICS) and the Dun’s
market identifiers (DMI) to segment its industrial market.

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c. By using secondary data, Educational edge can initiate a lot of savings in cost, effort and time. In this
case, it would neither be physically nor financially possible for Educational edge to conduct a primary
research to obtain data. The limitations are that the information received from published sources could
have become dated and hence problems of fit could arise. Also, the accuracy of data and its error bounds
are not known. There is a possibility that some assumptions may have to be made when the data is used
for purposes of calculation.

6a. Howard Enterprises should opt for secondary data to select countries that merit in-depth investigation.
This is because Howard is a small company with limited resources and a marketing research study would
cost money. Also, primary data collection, in the international context, is time consuming. Alternatively,
secondary data is relatively inexpensive and can be used to arrive at interesting propositions that can be
tested later through primary research. Secondary data sources can help Howard to assess market
opportunities in countries that it has little knowledge.

For the initial part of identifying the countries, a wide variety of secondary data sources can be used.
These range from sources that provide general economic, social and demographic data for almost all the
countries in the world. For preliminary screening of countries, Howard could use macroeconomics data,
based on various sources like United Nations and World Bank. Similarly, Howard could also look at
industry specific data for market opportunity and analysis. Also, sources specific to individual countries
or product markets should be looked into. For instance, if Howard feels that there is ample potential for
lamps in the United Kingdom, it could consult the International marketing handbook, published by the
US department of Commerce which provides profiles and special information about doing business in
the UK Also, the UK consulate trade office will be in a position to explain more about the investment
opportunities in there. Howard should also check for private published sources to obtain industry relevant
information.

b. Howard should keep in mind that data acquired from secondary sources, in the international context has
two major limitations.

Comparability and accuracy of the data: Various sources report various values for the same indicators
due to different definitions followed for the indicators in those countries. For instance, a huge corporation
in Nepal will be taken as a medium sized company in Australia. Hence the comparison of statistics
creates a big problem in the international context. Also, the accuracy of the data is also highly variant
between countries.

7. From the EIS Industrial Plants or EIS Manufacturing Establishments obtain information about any one
industry. This can be done by selecting the NAICS code for that industry. EIS provides information on
the value of the shipments, share of the market estimates and other information about organizations.

Another way to obtain the same information is to collect the sales figures for the brands in this product
category from the retail stores. Because only a select number of retail stores will be contacted and the
sales for the product will be extrapolated from this, this can give a different sales estimate.