Market research, horse racing and selling insurance
The numbers that come out of market analysis may be hard but the assumptions that underlie them and even the definitions of what constitutes a market category are often uncertain and spongy. This is especially true for market forecasts. Anyone that claims to know what any market will be doing in three or four years’ time and is prepared to go to four or five significant digits to express that knowledge strikes me as likely to be either a fool or a charlatan.
In most areas of human endeavour predicting what will be happening next year is tough and should come with enormous error bars, but three or four years out becomes a rather futile exercise.
I rarely if ever see market research forecasts with error bars; presumably because a value plus of minus 50% doesn’t sell well. Occasionally I see forecasters try to address the issue with "optimistic, pessimistic and middle-way" forecasts. Good for them and their credibility.
I expect that at this point market research analysts will want to rush to their own defense. They may say they have built some computer model based on a broad set of assumptions and on historical data as well as it is known and the numbers spill out from that. They may add that, obviously, if the historical data is flawed or any of the assumptions proves to be wrong then it should be no surprise that things turn out other than as they predicted.
The trouble is, the historical data is usually flawed and there is always some assumption-breaking event or global crisis that derails the outcome. It therefore occurs to me that market researchers are a bit like tipsters in the horse-racing world. There is always some reason why things did not quite turn out as expected.
A clear test of their information is that if they are so certain of the outcome of some future situation or event why do they not keep the valuable information private and exploit it to their own advantage? The very fact that that market researchers are prepared to sell their insights and forecasts to other interested parties undermines their value.
Nonetheless, enthusiastic gamblers rarely ask the tipster why he is prepared to pass on the name of the winner of the upcoming 2:30pm race at Kempton Park.
And yet executives in the electronics industry pay good money for market analysis and they are not usually as befuddled as the addicted gambler. So why do they do buy it?
Next: In favor of market research
There are reasons. When a company is in need of information to guide their move into a new market, analysts and researchers can be helpful. After all the future competition is unlikely to share – except in so far as it is possible to hire an executive experienced in the field the company wishes to enter. Another argument is that somebody’s guess – anybody’s guess – at market size and market trends is better than no guess at all. And a third argument is that if you listen to multiple analysts and somehow average it all up you will get the best insight of all.
A fourth argument is that the thought processes that go around the calculations of market sizes and trends are the most valuable thing of all as they take into consideration a complete value chain and spend time mulling competitive effects that are outside the scope of most individual companies.
But one of the things these managers are buying is deniability; an insurance policy against disaster.
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On the other hand, if the manager pays well-known outside sources for information they can say they conducted reasonable due diligence and that the fact the plan went awry is nobodies’ fault – or a least the fault of nobody on the company payroll.
So in that respect market analysis firms serve the twin functions of tipster and insurance vendor. But it should be remembered that forecasts that a market may grow or dip by so-many percent, so many years out in the future should be either disregarded or treated with scepticism.
Related links and articles:
Companies missing from CMOS image sensor rankings
Pause forecast for CMOS image sensor market
Omnivision loses ground in CMOS image sensor ranking
Top ten CMOS image sensor vendors ranked
CMOS image sensor market on 10.6% CAGR
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