Today’s interview is with the new President of the Barbados Economic Society.
Congrats on becoming the new President of the BES. When was the official start date of your term?
Thank you. December 19, 2017.
I know that you’ve been in the press a bit and I saw the last BES press release on your thoughts about the economy. I think everyone accepts that we’re in a precarious position. One of the things people ask me all of the time, and I assume that they will ask every economist, is should we devalue. What are your thoughts?
No. Why? Because I don’t think it adds any material benefit to us. I think that clearly we’re a very import-dependent economy and devaluation would just increase the cost of those imports because we don’t have the excess capacity to produce what we currently import. Not in any meaningful way, at least. On the export side, it’s not like we have lots of hotels that are empty. The hotels are very much doing well, at least in the tourist season. So, making the currency “cheaper” would not necessarily bring additional benefits to Barbados without improving the current capacity.
People have been talking about going to the IMF. What are your thoughts on that?
Yes, we should go to the IMF, and not because the IMF can solve everything. But simply because we have a balance of payment deficit that is getting worse every year. The reserves have been declining at a faster rate every year since 2013/2014 and part of the reason is that government’s debt has become so high and the credit ratings have become so poor that government has to pay external debt out of reserves. We need to be at least able to match those outflows in order to stabilise the reserves and give us time to make the necessary adjustments on the current account – which would be imports and exports – to stabilise the reserves even further and put them on an upward trajectory.
But if we go with the IMF, the IMF obviously has their prescription, usually involving devaluation.
Sometimes, it might. In 1991/92 we didn’t devalue and we were in an IMF programme then. What it means is that we’d have to make further cuts and adjustments on the fiscal side. Either way, the prescription is going to be to restore the balance between inflows and outflows of foreign exchange. The IMF might suggest devaluation and we might suggest a fiscal adjustment, and I suspect a fiscal adjustment would need to be even greater if we reject devaluation.
So what is the difference then between going to the IMF and what we’re already doing? There are a number of economists that have said that we have our own almost home-grown adjustment programme, so what is the benefit in your view of going to the IMF when we’re already allegedly implementing measures now?
There are two things. The IMF provides the foreign currency that we need right now to stabilise the reserves. It’s all well having a home-grown programme, but we don’t have the time or enough of a buffer from a foreign exchange perspective to allow us to make the adjustments sustainable without running out of reserves first. The IMF provides the FX.
The second thing is that the IMF provides credibility once you’ve passed the tests. Too often we’ve set targets for ourselves and we have failed to reach the targets without any real consequences, so to speak. The IMF puts benchmarks in place, where if you pass the benchmarks, if you meet the standards, then you get financing. So there’s a carrot and stick situation. And that additional credibility is favourable with the credit rating agencies and the international investors, and that might help to restore access to the international financial markets.
The argument of going to the IMF for credibility was used for Jamaica, and Jamaica still missed their deadlines. The programme came to a halt and they had to redo the entire programme and that sent the economy into a further decline. In addition to missing the deadlines and the obvious implications of that, the credibility factor was lost as well. So my fear is that if we’re not doing well at execution now, what makes people believe that the IMF coming will necessarily make us any better at execution?
I think that’s where a credible plan needs to be put in place; not just a plan with quantitative targets, but how are we going to get things done. Part of the reason why there is a Barbados Sustainable Recovery Plan, and this whole process of trying to get the social partnership back together and an oversight committee in place, is to make sure that we have an implementation plan as well as macroeconomic targets. So, I think it involves consultation with other members in the private sector and the unions, which may be in a position to help with the implementation. Many of these issues may require some adjustments to the size of the government’s labour force, and obviously the unions can determine how easy or difficult these adjustments can be achieved.
I remember when the social partnership attempted to meet last year, in the discussions they were very much, on the private sector side, anyway, trying to get the unions on board and agitating for the government and the unions to reach a final position with respect to civil servants’ wages. That to me never happened. And, if it’s not happening in this current environment, where it is fairly obvious why you need an agreement on the way forward, why would the IMF coming change that dynamic?
I guess the challenge is that the IMF probably won’t change that. We need to change that ourselves, which requires strong leadership on all sides. I don’t think it is an easy fix, but we have to get to a stage where people fear for the Barbados economy’s long-term health enough that they will make the necessary decisions and changes that they need to make. But I don’t think the IMF can force those changes.
Do you think people have a clear understanding of the consequences of the decisions we face? One of the questions that we get asked is what happens if we run out of reserves. We’ve never run out of reserves as a country, so this is not a ‘real’ scenario in most people’s minds. They have never lived through a situation where there are no reserves. So, just to help clarify this issue for the people that will be reading this, in your view, what happens if we run out of reserves, if the reserve cover actually gets to zero?
Two things. The reason why we have a 2:1 peg is because the central bank guarantees that rate if the commercial banks come to the central bank [for foreign exchange]. If the commercial banks go to the central bank and the central bank has no reserves to guarantee the rate, then the rate is set basically by whatever the market determines. So the first thing that would happen is that you may have a devaluation, if commercial banks set the rate at a much higher level than it is today.
The second issue is that sometimes because of the seasonality of foreign exchange inflows and outflows, we have to use the reserves to pay for food and medicine and construction materials and so on. If we run out of reserves and the commercial banks aren’t getting enough FX from tourism and international business, and we have to dip into reserves and we have none, then essentially we go for a period without being able to import food. It is then that the average person would certainly feel the impact of having no reserves.
Part of the challenge that we have in the country is that we’re not earning enough foreign exchange and we have sizeable FX expenses, which is why the reserves are being drawn down. One of the questions that we get asked is what do we need to do to actually earn more foreign exchange. All of the measures that the government has put in place have been along the lines of retaining what little we currently have. What would you suggest the country do to actually earn more foreign exchange?
Earning FX and saving FX are kind of similar. Alternative energy, for example, is not an earner of foreign exchange but it achieves the same thing. So, moving more towards sustainable energy, whether it be wind or solar, would help. I think that back in Q1 2015, the central bank reported that Barbados produced an external current account surplus, which in my lifetime has been a rarity. The reason for the surplus was that oil prices had fallen so low that our inflows of foreign exchange more than matched our outflows of foreign exchange, at least on the current account. If we can replicate that over time, we can have a significant growth in the FX reserves.
The second thing is building out capacity in other areas. For example, we do really well in tourism but I think we can do more. If you look at Aruba, Aruba gets about 1 million stayover arrivals every year and we get about 600,000. Their economy, the size of their population, the size of their country, is much smaller than ours. Is there perhaps room for us to grow significantly more in tourism given what Aruba has been able to accomplish? And then there’s international business. International business is a favourite of mine because it is a weightless export. We have lots of professionals here and I often say, why can’t a Barbadian set up an international business in Barbados, an accounting firm, for example, and offer their accounting services to Canada or the UK, because we do the same professional qualifications and we can probably charge a slightly lower price for the same value. Those are just examples of how we can earn more foreign exchange.
The other area that I think we need to go into over the long term is being able to earn FX from income as opposed to being a net payer of income to other countries. So if you look at the current account, you’d see that we earned as much from exports of goods and services as we paid in imports of goods and services in 2017. The reason why the current account was in deficit is because the income that we earned from non-residents was significantly lower than what we paid. And part of that is because we have to pay dividends to non-residents, people that invest in Barbados, as well as to pay interest on debt. If we can somewhat reverse that so that we’re investing more externally and we’re earning dividends from overseas then we can close that gap in the current account and earn more foreign exchange as well.
To me what you’re pointing to is an opportunity for the private sector.
Maybe yes, it possibly is.
That is one of my pet peeves. One of the reasons why AE exists it to support the private sector. Economists traditionally have supported governments and society at large and we feel that, while there is more we can do, it is on the right track. So you do have a situation where for big decisions government entities, development banks and certain types of NGOs know to come to an economist for support. They know to ask for help. They know they need forecasts, they need scenarios, they need estimates and so on. But in the private sector a lot of decisions are still based on what essentially boils down to gut. And while that is useful, and I’m completely supportive of the instinct that business people develop for their field and industry, one of the challenges I think we have, and why Barbados is lagging behind some of the other islands with respect to our private sector, is maybe because there isn’t enough information to ground decisions in fact.
Which brings me to another set of questions around the economics profession generally. The BES is probably one of the quietest associations for professionals. Just so that the readers understand, to be a member, do you have to be an economist?
No you don’t. We have members from various industries and professions.
Do you think that we have a situation in Barbados where people do not understand what it is that economists actually do?
I think it’s possible. People often see economists as related to government, as you implied, and that is why those that are a part of the private sector may not look to economists because they may not be as interested in what is going on in the public sector. I also think that they see economics as very much an academic field. Lots of models, forecasts that aren’t perfect. So from their perspective it is not very practical. I think, as you said, changing that is very important.
I’ve never seen that as a mandate of the BES. To me, the BES has always had a focus on overall macroeconomic development. During your presidency, will you continue to focus on supporting the entire economy and the initiatives that are going on at the national level?
We definitely want to play a role on the macro side, but also on the private sector side. One of the things we’d like to do is to offer training courses to private sector organisations; it could be a simple training course on how to create a regression in Excel, because the average person will not have EViews or Stata or one of the other modelling programmes. So how do you create a simple regression in Excel? How do you interpret the results and how can you use it for forecasting? My experience working in the private sector suggests that there are many questions that people have that can be answered with economics or econometric tools; things like marketing, for example, or how you allocate resources most efficiently, which is central to the area of economics. So that’s what we want to do if we have enough resources and time this year.
Your term is one year only?
I know you had said you wanted to support the macro economy; is there a facility right now to allow you to do that?
There are a couple of ways that we can do that. One of the things that we would like to do is to speak in the press and have our various sessions to discuss these issues. Ultimately, the insights do get filtered up to the various politicians and decision-makers. What we’d like to do as well is, given that we have so many consultations on the sustainable recovery plan and where do we go from here, whether we go to the IMF or not, we want to have a seat at the table as well. It is something that we have discussed as an executive and certainly it is something I have queried already, maybe as a private sector organisation, because we are not public sector and we’re not a union.
Is there anything that you’d like the private sector to do to support the work of the BES? Is there any support that you need from the private sector?
Data is always important, if that’s available, because making recommendations and estimates without the appropriate data is always quite dangerous and personally I like to have my facts before I go speaking on things. I also find that often our decision-making doesn’t seem grounded in much modelling or fact. It’s like, let’s do this and have this outcome when clearly it seems as a professional looking in from the outside, you’re not going to get the outcome you wanted or there will be issues. So I think the private sector can help in terms of pushing for a rigorous approach and a fact-based approach to policymaking.
Thank you very much Shane for taking the time to talk to me today.
A little bit about Shane:
Shane Lowe is the current President of the Barbados Economics Society. He has a keen interest in and working knowledge of Caribbean economies having worked as an Economist at both the Central Bank of Barbados and in the private sector. He has published both independent and co-authored empirical research papers in the areas of fiscal policy, financial stability, external competitiveness, tourism sustainability and economic development in peer-reviewed journals and as part of the Central Bank of Barbados’ Economic Review and working paper series. More recently, his research has focused on understanding the drivers of consumption volatility in small, open economies as well as on applying optimisation techniques to determining appropriate solutions to existing economic policy problems. Shane is currently a PhD candidate and graduate of the University of Glasgow where he earned his Master of Science in International Financial Economics with distinction. He previously obtained a Bachelor of Science in Economics and Accounting from the University of the West Indies, Cave Hill, and is also a holder of the Global Association of Risk Professionals’ Financial Risk Manager certification.
- The experience that prospective employees have with the employer’s brand when job hunting;
- The level of engagement of current employees and their overall attitudes towards their employers; and,
- The response that current employees have to internal communication efforts that reinforce the employer brand.
In many instances, the first time an employee encounters an organisation’s employer brand is when considering the organisation as a potential employer. Therefore, understanding the needs of job-hunters plays a crucial role in how organisations position their employer brand. The main insight uncovered by the research is that not only are appropriate pay and corporate culture the two most cited criteria when choosing an employer, they are interlinked. 53% of respondents stated that the most important challenge when job hunting is finding a job that pays what they’re worth, while the second most important challenge is finding an organisation with a good corporate culture (38% of respondents). The study further uncovered that companies with poor corporate cultures are more likely to encounter a ‘culture tax’, an unofficial salary premium expected by employees to compensate for the poor corporate culture that they must endure. Together, the results reinforce the importance of the employer brand in attracting the best talent.
Employee engagement is an important concern in Barbados, and will become even more so if the country is to produce its way out of its current economic challenges. Apart from a small uptick in 2014 that was the result of decline in total national hours worked, productivity levels in Barbados have been falling since 2011. Boosting employee engagement has the potential to improve productivity levels in Barbados, as more engaged employees would result in a greater return on the investment made in human capital. As an example of the potential rewards that could be received by improving engagement levels, consider a 2013 article published by Gallup on boosting productivity in the United Kingdom. The article estimated that eliminating active disengagement from the U.K. workforce could result in productivity gains between £52 billion and £70 billion per year.
In Barbados, addressing employee engagement could provide an immediate boost to productivity, as our research estimates that the employee Net Promoter Score (eNPS) for Barbados in 2017 was -52%, i.e. for every employee that is willing to promote their employer to others, there are five more that are detractors that may be damaging their company’s reputation through negative word of mouth. Furthermore, only 51.8% of employees consider their job to be a career, and 43.9% would like to be working somewhere else within the next 12 months. The eNPS score, along with these results, point to notable dissatisfaction amongst workers in the country. The results also raise the possibility that their dissatisfaction could be negatively influencing their employers’ brands.
An organisation’s internal communication efforts are typically the only formal attempt to articulate the employer brand to current employees. Organisations can use internal communications to drive home messages around its values and culture as well as communicating more practical information about financial performance and strategy. And, in today’s era of widespread social media usage, getting these messages out can be not only interactive and fun, but could also lead to useful insights that could further strengthen employer brands.
The results of the study show, however, that organisations in Barbados may not be fully taking advantage of internal communications to strengthen their employer brands. 40% of employees that took part in the survey stated that their organisation’s management team did not communicate with employees on a regular basis, and 48.6% believed that their personal values and their organisation’s values were not aligned. In both cases, these employees had lower eNPS scores than their counterparts who benefitted from more frequent communications as well as those that believed their personal values and their organisation’s values were aligned.
How to Access the Executive Summary
In the report, we suggest ways in which organisations can strengthen their employer brands by paying attention to these three areas: the employee experience while job hunting, employee engagement and internal communications. To read the entire executive summary, click here. By downloading the report, you will automatically be signed up to receive notification when the full report is available.
 Ministry of Finance and Economic Affairs (2016). Barbados Social and Economic Report 2015. Government of Barbados.
 Gallup. 2013. Solving the U.K.’s Productivity Problem. [ONLINE] Available at http://www.gallup.com/businessjournal/165947/solving-productivity-problem.aspx?g_source=productivity&g_medium=search&g_campaign=tiles. [Accessed 4 September 2017].
Do you already subscribe to our free newsletter AE Quarterly? If so, it should already be in your inbox, ready for you to delve into our new content. If not, what are you waiting for? AE Quarterly features articles written by the AE team on business topics relevant to our Caribbean audience.
The featured articles in the December 2017 edition of AE Quarterly include:
- A Preliminary Look at the Mass Market, Mass Affluent and Wealthy in Barbados
- Age and Employee Satisfaction in Barbados
- Why Train Employees – An Argument for Training and Development
Subscribing to the newsletter is free, and if you haven’t already signed up to receive yours, you can do so now by clicking here.
We’d love to hear what you think and any suggestions on the types of articles you’d like to have us feature, so feel free to email us your feedback and suggestions at
How economic forecasts and scenarios can strengthen financial planning
It’s already mid-December 2017. Your organisation has already started (or maybe even finalised) your plans for 2018. You have targets and budgets and tactics lined up to take you confidently into the year ahead. But, did you remember that 2018 is an election year in Barbados? Did you factor that in to your organisation’s financial plans?
Election years are typically characterised by increased government spending (which is often accompanied by increased consumer spending) and greater economic confidence. All of the campaigning and promise-making usually puts everyone in an optimistic frame of mind. Given the state of fiscal affairs in Barbados and the generally depressed economic confidence levels, however, maybe 2018 will buck this trend and it will be more or less business as usual. Or maybe the pessimists amongst us will win the day and 2018 will be the worst year, from an economic standpoint, that Barbados has ever experienced. Has your organisation considered the impact of any of these scenarios?
It has been my experience that the economic forecasts included in corporate financial planning exercises are only baseline forecasts. What do I mean by ‘baseline’? Baseline forecasts typically assume that the future will continue more or less in the same fashion as the recent past. In the case of Barbados, therefore, the next 3 to 5 years – i.e. the usual planning period for corporate budgets – will be characterised by:
- low levels of inflation
- a fixed 2:1 exchange rate with the U.S. Dollar
- economic growth rates around 1%
- unemployment around 10%
- debt levels over 100%, and,
- fiscal deficits over 5% of GDP.
But what if one or more of these assumptions no longer holds?
What if the deficit worsens? What if the exchange rate is adjusted? What if the economy slips back into a recession? What if the country is forced into a programme with the International Monetary Fund? What if 2018 is not business as usual and it’s not a typical election year? What impact will these scenarios have on your organisational plans?
And did you consider how economic policy may change depending on which party is elected?
Each party has different ideas on how the country should be run and where emphasis should be placed. Therefore, depending on which government wins the elections, your plans may no longer be relevant.
Including economic forecasts and scenarios into corporate financial budgeting exercises can help you plan for various plausible futures. Not only will you feel better prepared, whichever outcome, but you will also have a better understanding of the likelihood of each scenario, which would allow you to adjust your resources accordingly. Antilles Economics offers a comprehensive range of economic advisory services – for example, workshops, customised forecasts/scenarios and internal stakeholder briefings – that can provide forecasts and scenarios. And, there are various government agencies that publish their expectations about the future, as well as IMF reports and advisories from the international rating agencies. Once you’re confident that you can translate that information into meaningful intelligence for your organisation, they are reliable and trusted sources of economic data.
I’m looking forward to 2018. I think it will be a very interesting year from an economic standpoint. But what may be interesting for us economists, may be devastating for profit-making enterprises. Make sure you’re prepared.
I once heard a manager proudly tell a new analyst who joined her team that in their business, you have to get comfortable with not having information and making decisions in an environment of great uncertainty. She was not talking about the future and the uncertainty it brings, she was talking about right now. You see, this company did not have good customer or competitor information and over the years she became comfortable with not knowing. She simply assumed that once sales trends were in line with her assumptions, her assumptions about what was happening in the dark were correct. Concepts like coincidence and business cycles never occurred to her. Furthermore, she became adept at convincing others of the same thing and took great pride in the fact that she was comfortable navigating in the dark. After all, it takes a lot of experience to navigate successfully in the dark.
She is not unique. We all seem to accept that we are feeling around in the dark and advise others to get accustomed to not seeing their fingers in front of them. We have become so comfortable with the dark that the light actually scares us. What if the light reveals that we are not where we thought we were? Or that those who we thought were with us have long gone? So we choose to continue operating in the dark, crossing our fingers that we don’t stumble into anything too unpleasant. We actively decide to NOT even turn on a flashlight. I mean, it won’t show us everything anyway, so why bother? Plus, it’s not like we’re uncomfortable.
But does that make sense? Wouldn’t even a little light be better than none at all? Wouldn’t it be better to be sure about a little about your market than nothing at all? Isn’t the investment in a flashlight worth it?
As part of the development of a good marketing strategy, marketers define their target market, i.e. who they are trying to attract through their branding and advertising efforts. Typically, they take their cue from the corporate strategy, which would assume, inter alia, that the products and services being created by the company would be of interest to their chosen market.
My experience, however, suggests that in some cases there’s a difference between who the company is targeting and who is actually purchasing its products/services. Consider, for example, the restaurant that is focused on attracting young families, but instead sells to a significantly larger proportion of single, busy professionals; young families hardly eat there. Or the financial institution that realised that the segment that they thought were purchasing one of their investment products did not own various high-valued assets but simply had excess cash. Or the boutique that targeted young, fashionable twenty-something year olds, but actually sold more to mature, less trend-conscious forty-something year olds.
So, how do you know for sure that who you’re targeting are the ones actually buying?
1. You ask them. Feedback and customer satisfaction surveys from customers should be part of the market intelligence arsenal of any company that is serious about keeping close to their customers. In addition to making sure you’re meeting their expectations, you should take the opportunity to collect basic information (such as demographic information, how they use your products or lifestyle indicators) to confirm that you know who’s buying your products.
2. You observe them. If you have a storefront, social media presence or any other location where you can watch customers interact with your brand and your products and services, you should take some time on a regularly scheduled basis to see for yourself who’s buying, who’s looking but not buying and who’s walking past your displays without even a passing glance. You should also ask your customer-facing team to give you their opinion.
3. You monitor them. If you’re in a position to collect customer data, the resulting database is a trove of extremely valuable insight into your customer base. The only caveat is that you have to be collecting the type of information that would allow you to check whether your target market are your customers. For example, if you’re targeting persons that are health conscious, but only collecting information on gender and age, you’ll never know if your customers are in fact health conscious. Or if you’re targeting persons within a certain income bracket, but you never actually ask your customers for their income (or some proxy of income) when they sign up, you’d never know if you’re right.
4. You listen to them. In many cases, your customers are already talking about you. They’re sharing their experiences with your products and services on social media and radio talk shows. Pay attention to who is talking and who’s responding. While the loud don’t always represent the majority, they often spark conversations that the majority chime in on. It pays to listen.
At a time when every marketing dollar spent has to count, marketers have to understand if their efforts are spurring the type of demand they intend, and, if not, what (if anything) they should do about it.
One of the biggest travesties to me in strategic planning – yes, I know I’m being dramatic – is that companies do not incorporate economic forecasts and scenarios into their strategic plans.
I don’t count mentioning the outlook in the background section when you’re setting the tone for the rest of your plans. To me, that’s like when you’re interviewing someone and you ask about their education. It’s an ice-breaker. It is only relevant if they’ve learned something practical and can put it to good use in your organisation. Otherwise, you’re just giving them an opportunity to relax a little. Many companies use economic forecasts in the same way: as introductory material to break the ice and help other people relax in the knowledge that they’ve given this a little thought.
Another common use is as an item to check off a list, which happens frequently in institutions where employees have to compile economic indicators and send to their executive team or board of directors. They couldn’t tell you what the numbers mean or what the implications are for their company, but they’ve ticked the box and can happily move on to something else. What’s worse is that often the executives and board of directors also tick the box that says they’ve seen it, and no one discusses what the numbers mean.
Maybe I should be happy that they’re at least doing this bare minimum, but it’s hard to watch when there’s so much more value that can be tapped.
Here are a few ways that our clients have used economic forecasts and scenarios to help ground their strategies:
- An insurance company used our forecasts of economic growth, unemployment, insurance claims, insurance premiums and new policyholders to adapt their strategic plan immediately following the 2007 global financial crisis. They were able to brace for the economic slowdown in Barbados before it arrived by implementing revenue-enhancing and cost-control measures as a matter of urgency.
- Our client in the global consumer goods industry was considering expanding their operations into the Caribbean. They hypothesised that the size of the middle class in the Caribbean was growing and could represent a lucrative market. We estimated the size of the middle class and forecasted its growth, which the company then used to select the best countries for investment.
- Amidst all of the discussion about potential downgrades to the Barbados dollar and further austerity measures, our client in the financial services industry commissioned an economic scenario building exercise to investigate the impact of various options being debated in the press. The resulting discussion included senior leaders and was designed to ensure that each area within the organisation understood the likelihood and potential impact of each scenario.
There are many other ways that economic forecasts and scenarios can be used in companies. The most important thing to remember is that your organisation does not operate in a bubble; it is part of a wider network of interconnected companies, government institutions, international agencies and consumers. You affect and are affected by the decisions that each player makes. Staying on top of economic trends, and using them to your advantage, is just as important as staying on top of consumer trends.
Do you find that when you’re asked to identify your target market, you respond with something like ‘millennials’ or ‘people living in this area’ or ‘young families’? That’s specific, right?
But yet when you place your ad – which everyone agrees is fabulous – in the media outlet that your target market is exposed to, the results are less than outstanding. Or when you create that product that is perfect for your target market, there’s such little uptake, even though you know your market is aware of your perfect product.
Maybe you’re only attracting the early adopters … or maybe you haven’t defined your market with sufficient precision.
AE’s approach to target market definition consists of 5 levels of precision. Let’s use the example of targeting millennials.
Level 1: Demographics (male millennials, i.e. persons born between 1980 and 1996)
Level 2: Interests (male millennial sports fans)
Level 3: Lifestyle (male millennial sports fans that watch sports while hanging out at bars with their friends a few times a month)
Level 4: Attitudes (male millennial sports fans that watch sports while hanging out at bars with their friends a few times a month and believe that winning is more important than how you play the game)
Level 5: Values (male millennial sports fans that watch sports while hanging out at bars with their friends a few times a month and believe that winning is more important than how you play the game and highly value their traditions)
The best products, market campaigns and corporate strategies require Level 5 targeting.
How would you get their attention if you defined your target market using only Level 1 criteria versus if your target market was defined up to Level 5? Would you still be considering the same media outlets, the same imagery and the same products?
For more information on how you can use this approach in your business, contact us at 246.253.4442 or .
It seems to me that marketers love focus groups. In almost every discussion I’ve had on solving a market research problem, marketers have suggested the possibility of focus groups. Maybe they’re attractive because they are relatively inexpensive compared to other research methods, can be organised quickly and are deceptively easy to conduct. And you can’t discount the obvious benefit of being able to interact directly with your desired audience.
But a word of caution: focus groups are not the ideal solution in every instance where you need to learn more about your market. Inherent in the use of focus groups are some risks that, if not accounted for, can lead to incorrect conclusions and costly decisions.
This brief post summarises what we’ve found to be the main drawbacks of focus groups.
People’s ideas and opinions tend to converge when discussed in a group. You’ve probably observed this yourself in meetings. Prior to a meeting, you may have a fairly strong opinion on the issue to be discussed. During the meeting, a strong personality dominates the conversation and either you do not get an opportunity to add your two cents, you start to change your mind and lean more towards the other person’s opinion or you find it easier to only add your opinions that are in alignment with the majority rather than start an argument by disagreeing. In any case, the moderator leaves the session believing that the strong personality’s position was a consensus across the group. In a perfect world, however, the moderator would have had the benefit of your point of view because odds are there are other people in the market that think like you do.
People lie to themselves, so they will lie to you too
This one is hard for most people to fully appreciate in business settings, but often we do not do what we say we will do. That’s why I do not suggest that people use focus groups to gauge intent to purchase. Let’s face it, we all have good intentions that aren’t realised; we don’t think of them as lies. But in this type of research setting, especially if you’re trying to gauge likely purchase, asking people what they plan to do is often not helpful. Yes, there are ways to minimise this, but when compounded by group think, it’s a tall order.
You only get answers to the questions you ask
To be fair, this is a risk in almost all types of research. But in focus groups there is a real danger because you often get such interesting and potentially useful feedback that you may not realise that you didn’t get a good answer to the most important question. Conversations may get derailed, defused or entirely omitted as you run out of time. Consider the example of a focus group to discuss a new product the company plans to offer. Odds are, the discussion would zoom into product features, price points, potential applications, and so forth. But the most important questions really should be: would anyone actually buy this product and, if so, why? That alone could take up the entire hour/hour and a half of a focus group. This leads to a secondary point, which is that too often focus groups attempt to cover too many topics in one session, which does not give the moderator time to really dig deeply into any one issue.
The results are not statistically representative
Too often people confuse the fact that focus groups provide insight into the needs, thoughts and feelings of a target market with the need for insights that are representative of that market. Let’s clear that up. For any sample – the focus groups participants in our case – to be representative of the underlying population, it has to be matched on all attributes that are expected to be influential on research outcomes. This requires detailed understanding of the underlying population that goes beyond basic demographics. You may also need to know their likes/dislikes, geographical location, level of education, family responsibilities, etc. Then you have to ensure that the proportions of various segments of that underlying population are reflected in the same proportions within your sample. But focus groups tend to have no more than twelve people, which may mean one person per segment. One person’s opinion cannot represent their entire segment. There are some workarounds, like multiple focus groups with different segments, very precise selection criteria, etc. But a word of caution: even if you consider the smallest representative sample size, which is around 300 persons, odds are you’re not talking to anywhere near that many people in your focus groups. Don’t confuse informative with representative. They each have their place.
The bias of compensation and other intangible benefits
There are individuals who simply enjoy participating in research activities and care nothing about the topic you’re investigating. They’re opinionated and revel in opportunities where they can share their points of view. Some people in larger countries even make a living from participating in paid research activities. I remember one participant in one of our focus groups casually debating with me about how much he should be paid, even though he was amongst those that contributed the least and we had to keep pushing him for feedback. Clearly, he wasn’t there because of any deep interest in the topic. It’s like gauging the mood of the population simply from listening to a call-in programme. Not everyone who has a strong opinion will call in, and the loudest people do not always speak for the majority. On the flip side, if you don’t compensate people for taking the time out of their busy schedule to attend your focus group, will anyone come?
In short, focus groups remain one of our favourite research tools, but they’re not ideal for every situation. Interested in learning more about how to organise your own focus groups, email us at