WHAT DO WE KNOW ABOUT CONSUMER CONFIDENCE?  Economic cycles are influenced a great deal by consumers’ subjective feelings of confidence.  In fact, recessions can be prolonged by a “vicious” cycle of cautious consumers putting off spending, which in turn results in a slow-down in the economy and even greater gloominess.  Thus, economists, businesses, and public policy makers have a great deal at stake in trying to understand how consumers perceive the economy at its present and its future prospects.

Certain questions have been designed to measure changes in these feelings among consumers.  Recently, however, these have come into serious question as economists have increasingly challenged their predictive accuracy.  Federal Reserve Chairman Alan Greenspan, for example, suggests that various measures of actual behavior—such as current spending and new home purchases—are a more reliable measure.

The bad news is that although various measures may give us some insight into consumer thinking, no measure is anywhere near perfect.  This problem is compounded in our current situation by the “fleeting” nature of economic reports.  Reports in the news on various measures of economic activity seem to go in haphazard directions—sometimes the news seems good and sometimes bad.  Apparently, there is no clear trend one way or the other.  In addition, many news stories seem to question the validity of measures previously reported.  Add to this uncertainties about impending war, and it is understandable that consumers are perplexed.

One thing to keep in mind in interpreting consumer confidence studies is that different groups of consumers face vastly different situations.  A significant minority of people may worry to some degree about job loss, but most people’s jobs are, realistically speaking, not in serious jeopardy at the moment.  Some of these people may face reduced bonuses or no bonuses at all, but there is no great risk that loss of their jobs will leave them unable to meet monthly mortgage payments.  In such cases, low interest rates currently available can be a great motivator to buy a home.  Some people who have faced losses in the stock market may also take this time sell their homes so they can “realize” capital gains in their homes which can be can be “canceled” out by stock losses on income tax returns.  So, while increased home buying is good for the economy, it is not necessarily a sign of consumer confidence.

Surveys, meanwhile, are subject to certain biases of their own.  In research, we often talk about the potential for “demand” effects—people tend to want to “please” an investigator by saying what he or she wants to hear.  We are “supposed” to be in a recession, and people therefore may feel that they are expected to express some gloom.  It is also very difficult for consumers reconcile their own situation with what the nation as a whole is feeling.  One’s job is either threatened to some extent or it is not.  On the other hand, we are all aware that for the nation as a whole, a number of jobs are threatened.  And, again, it is very difficult to make sense out of what is happening to the national economy.

SHOULD WE FOCUS OUR RESEARCH ON FOCUS GROUPS?  When one thinks about marketing research, one is likely to visualize focus groups.  When my students realize the need for research in their projects and on exam questions, most seem to move “instinctively” toward focus groups without much of a need to defend that choice.  Are focus groups the way to go?

Focus groups definitely have a role to serve in market research.  These groups can often bring issues to the attention of managers that researchers would have never thought to ask about in a  structured questionnaire.  Therefore, focus groups are often a useful “first step” in a research program.  Focus can help us identify questions that we want to assess more precisely through other methods, but they rarely ever provide any definitive answers by themselves.

Focus groups suffer from several limitations.  First of all, focus groups inherently represent small sample sizes.  For example, if you run five focus groups each with eight people, you have a total sample size of 40.  From statistics, you may remember rules of thumb that certain inferences can be made with sample sizes of at least thirty, but assuring any kind of precision almost always entails a need for much larger samples. 

An even more serious problem, however, is that even with forty people spread across several focus groups, you really do not have forty “independent” viewpoints.  Focus groups are inherently social events in which people are greatly influenced by what others have said or what they think other people believe or expect them to say.   In my own experience, focus group participants are often quite eager to “one up” each other.   A well trained focus group moderator can reduce the impact of this problem somewhat.  An expert can, for example, take measures to ensure that everyone is encouraged to talk and can try to alternate the order in which group members answer.  These steps, however, tend to interfere with the spontaneity of the process and to some extent defeat the whole purpose of assembling a group where respondents can elaborate on perspectives shared by others.

Are there any better alternatives?   Questionnaires—whether administered in malls, by phone, or over the Internet—do not have the flexibility to reliably identify issues that are not already known to the researcher.  One alternative that does nothing to solve the sample size problem—and it in fact may make it worse—is the personal interview where a researcher talks to respondents individually.  The high costs associated with focus groups already makes that method problematic, and conducting interviews individually would only seem to make matters worse.  Yet, there are ways to reduce costs.  First of all, it may be possible to hire doctoral students in psychology and anthropology to conduct some of the interviews.  They do not have the training that experienced focus group moderators have, but they can often do a good job performing interviews once they have seen a “sample” interview by an experienced researcher.  Secondly, focus groups are often transcribed in their entirety.  A graduate student may be trained to transcribe verbatim only some of the most unique areas of an interview.

Personal interviews provide for a much more independent expression of personal opinions.  It is still possible to get a respondent to address issues that a previous interviewee has raised, but such questions can now be scheduled toward the end of the session when the respondent has had a chance to express his or her own “uncontaminated” views.

Sometimes, the best way to find out about consumer concerns is to watch consumers who are actually shopping.  What are some features of a product they inspect?  Do they shop alone or is input from someone else sought?

A major concern, of course, is that the idea of focus group is now so “ingrained” into many company cultures that these may have a higher level of credibility than any other method.  That may be a large part of the problem!

WHY DOES TONY THE TIGER WEAR A SCARF?  This is admittedly, to quote a behavioral scientist reflecting on a slightly different issue, “a question that only a psychologist could ask.”  Tony made this fashion choice.  So what?

As trivial as this issue may seem, it actually raises an interesting question, in part because this question can be answered at several different levels. 

From a “bottom line” perspective, Kellogg almost certainly made this decision because market research showed that consumers responded more favorably to versions of Tony that featured a scarf.  Few major marketing decisions are made by accident.  Most likely, several different “Tonies” where tried, and the one that “tested” best among consumers was chosen.  In truth, marketing research is usually very much a “numbers game:” You prepare several different ads, package designs, or cartoon figures, and you select the one that consumers rate highest.  Frequently, that is not the one that you liked best or even the one you predicted people would have liked.  Consumers have minds of their own!

Now let’s look at a possible explanation as to why consumers may have made this choice.  There is potentially a very delicate balance to be struck here in making Tony genuine enough as a tiger while still keeping him as a likable role model for cereal consumption.  Let’s face it, most tigers are not politically correct enough to sustain themselves on a vegetarian diet of cereal.  Most tend to walk on four, as opposed to two, legs most of the time, and most tend to have a much duller fur than Tony’s bright orange.  Adding a scar, in this manner, may help Tony take on slightly more human characteristics.

Note again that while we can provide a seemingly rational explanation as to why consumers prefer Tony to wear a scarf, marketers are best off making actual decisions on test results rather than their own intuitions or theories.