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Fact Scan #5 The Confirmation Trap in Market Research (Part 1/2)

The confirmation trap also known as “confirmation bias” is our tendency to search for information in a way that confirms our preexisting beliefs and assumptions.

As we know more about the various kinds of biases and how they affect our daily decision making processes, we find the confirmation bias is one of the most common. At the same time it is one we can easily avoid.

The confirmation trap in market research

In business, there are situations in which we are prone to fall into the confirmation trap. Keep reading, if you plan to expand your business because here the trap applies every so often, too. Therefor we will illustrate how do avoid the trap once you are considering to expand and doing the first step: market research.

Before you decide to enter a specific market, make sure to conduct thorough market research in the target country. The question you want to answer at this stage is “Is Germany (or any other country) suitable for my company to expand into?”.

It can happen that you already have an emotional tendency to say “Yes” even before you started to gather the appropriate data. That is because your past experiences tell you so.

But don’t let past experiences mislead you.

Example: Companies in the Netherlands tend to favor Germany as the next go to market because it is geographically close and the cultural distance doesn’t seem that big. This is right in some ways but wrong in most ways.

It depends on several factors. What many don’t know about Germany is that it is a very heterogeneous country. Due to federalism the country has a very decentral culture and economy and traditions vary strongly from north to south, from east to west. These factors – and there are many more – should be considered when you plan a market entry.

Let’s take a look at a more specific case and how the trap can function.

Phase 1: Ignoring the filter

A Dutch company sells liquorice through an online shop and receives a few incoming requests from Germany, without having invested in any targeted marketing activities.

The company assumes that if they would actually chose to invest in localization and marketing activities in Germany, the demand for their liquorice must grow exponentially, too. They are excited, start to research the market and look for information, numbers and studies. They even call a few German friends to receive some qualitative feedback.

Phase 2: Looking for confirmation

The result of their market research confirms that Germans love liquorice and that all major German supermarkets sell at least 6 kinds of flavors and there are not yet any specialized liquorice online shops.

The research strengthens their hypothesis that entering the German market is a good idea and so they decide on a budget and initiate the market entry.

Phase 3: The trap snaps shut

What they do not realize is that Germans are not all the same. In northern Germany liquorice is a very popular candy but not at all in southern Germany. Not only do they spend marketing budget in areas where there is only little demand but the market size is merely half as big as assumed. And that is where they fall in the trap.

If you are not aware of the confirmation bias, you then go out there, analyze the market instead of taking in a neutral perspective. When you only look for confirmations you are not realizing that you are developing a blind spot for everything that is not in favor of the assumption.

The filter we wear every day

The confirmation trap is common because it results from the filter we wear every single day, if we want it or not. That filter is shaped by factors that are working subconsciously, like our culture, the experiences we made in the past and our upbringing. We are mostly unaware of it and that is why it applies so often and mostly without us knowing. So what can we do about it?

Test the opposite hypothesis

It helps when you apply not only one hypothesis to your market research but two. And the second hypothesis should be the opposite. Simplified, in regard to the liquorice-case, you should equally find facts for “Germans like liquorice” as well as “Germans don’t like liquorice”. This way, you are much more likely to find objective data and hence, avoid the trap.

It’s not the goal to remove the filter as it would not be effective to constantly think of it but it helps to recall it when making decisions that are rather risky, especially in business.

Maybe, in hindsight, you fell in the trap before?

Next week we follow on this example and look at the bias when you are revenue planning your project.