Friendly Spies on the Net

Corporate eavesdroppers sponsor chats--and get marketing smarts in return

Nancy Jaroh isn't the type you expect to find in an Internet chat room. The 49-year-old mother from Traverse City, Mich., has little time to spare after caring for three children and working part-time at a data-entry job.

Still, she managed to meet and befriend Linda Hutchins, 47, a stay-at-home mom in Durham, N.C., via the Web. They became so close that Jaroh's 12-year-old daughter paid tribute to Hutchins' mother, a cancer victim, during a recent cancer walkathon.

How did these two unlikely Netizens connect online? Through a corporate sponsor, one also acting as an authorized eavesdropper. Every recipe the two exchanged, every word of solace they shared since they went online in November, was monitored by researchers at Hallmark Cards Inc.

The greeting-card company hopes to glean new product ideas by watching the lives of 200 consumers unfold through online conversations held on its "Idea Exchange" Web site. In return, the participants receive Hallmark gifts every month and have a little fun. Many say they love tuning into their own soap opera every day. They sign on when they have a moment, chat among themselves, post pictures of home decorations at Hallmark's prompting, and answer the company's questions about products and ideas. "They're letting you in, showing you around," says Lori Givan, a senior business research project leader at Hallmark. "There are interesting things you can see, being a voyeur in someone's home."

Instead of keeping their ears to the ground, market researchers now have their eyes glued to the screen. From Kraft Foods Inc. and Coca-Cola Co. (KO ) to Motorola Inc. (MOT ) and tiny yogurt maker Stonyfield Farm, companies are creating private online communities and research panels that bring shoppers' feedback into the company 24 hours a day. Some panels are selected through scientific sampling of online databases, while other participants are solicited by research firms. Companies are betting that hospitable Americans are more than willing to invite them in if the companies ask politely, protect people's privacy, and give incentives--sometimes cash, but usually gifts or promotional coupons.

By doing this, companies hope to tap into lifestyles for ideas on how to make a better broom, find a new way to involve kids in making holiday decorations, or spot trouble with a new product. Kraft, for example, probed empty-nest baby boomers for information on lifestyles and eating habits to develop a new line of foods it expects to launch next year.

This is the cutting edge of consumer research, saving time and money and changing the way companies troll for new ideas. General Mills Inc. (GIS ) has moved 65% of its consumer surveys online, slashing costs by 50% and research time by 25%. Now it has its own company to conduct Web research for others. Indeed, online bulletin boards, virtual focus groups, electronic surveys, and chats with companies are replacing those nagging phone calls that always seem to come at dinnertime. Using traditional methods, companies often got the quick brush-off from busy consumers. But when folks are online, they tend to write lengthy, revealing responses. Coke, for example, did Net research for a relaunch of its Powerade sports drinks before rival Pepsi (PEP ) could conclude the acquisition of market leader Gatorade from Quaker Oats (OAT ). The company got plenty of ideas for improving its sports drinks, and the sessions with teens were done in half the time and at half the expense of traditional methods, says Coke brand manager Rohan Oza.

Today, Web research is a small but growing field. Companies spent $258 million, or about 10% of consumer research budgets, to query shoppers online in 2000. That's expected to rise 70%, to $439 million, this year, according to Inside Research, a market research newsletter in Chicago. "It's only the beginning," says John R. Hauser, a professor of marketing and management at Massachusetts Institute of Technology. "In five years, almost all product concept tests will be done online."

For many companies, there's little choice: Fierce competition, customer confusion over products that are close relatives of existing products, and scarcer shelf space are forcing companies to try to create new hit products faster and at lower cost. Consider the toothpaste aisle of the local supermarket. Every company offers combinations of toothpaste with baking soda, tartar control, peroxide whitening, in gel or paste, in fresh mint, clean mint, and more flavors. These kissing cousins "don't create the buzz that a truly innovative new product does," says Jeff Ewald, a senior partner with ad agency J. Walter Thompson. "Retailers aren't taking them on because there's limited shelf space and they're not exciting to customers."

That's why lightbulb moments from consumers are crucial. The sports bra, after all, was the brainchild of two women joggers who combined two jockstraps for extra support. Companies have long turned to customers for help in brainstorming new product innovation and development. But it has been costly and cumbersome to dig up the next big idea on Main Street. Phone or mail surveys, the typical way to query consumers for new ideas or test new concepts, can run up to $50,000 a pop. A single focus group of about eight participants costs an average of $5,000, not including travel, and usually at least three are needed in different cities to dig deeper into a concept. It costs $125,000 for a company to reach 200 people through focus groups. Online research firms say they can do it for much less. BuzzBack, a year-old Net research company in New York, would charge about $25,000 to reach the same number of people and deliver tabulated results within days rather than weeks.

Close call. With many of the efforts less than a year old, it's too early to tell whether such feedback can help deliver the next big consumer craze. Few ideas generated have made it through the product-development process to the store shelf. "We're making this up as we go along," says Tom Brailsford, manager of knowledge leadership at Hallmark.

Still, Hallmark is at the vanguard of using the Net for customer input. It's counting on the Idea Exchange to help generate new product lines that will allow the company to triple annual revenue to $13 billion by 2010. It can mine leads from consumers as they chat among themselves as well as test its own hunches. The company might ask participants to recall their all-time favorite card and ask them to send in the stock number. When they watch customers chatting online, they're looking for common threads, whether it's a hobby like keeping a scrapbook or excitement about a new trend like Pokémon. Any of this could lead to a new product or promotion.

One eureka moment came for Hallmark monitors in late May. The four-person team that watches the site noticed members talking about what to do with their kids on rainy days. They fed the idea to the company's book division. Now the book unit is exploring whether to publish a book featuring fun things to do to help frazzled parents trapped indoors. Brailsford says the exchange has given Hallmark an idea for a completely new product line, though he won't reveal it. "We're trying to get outside the building," says Brailsford. "Innovation occurs out there just as much as it occurs in here." The company is so pleased with the results that in May it launched a community for grandparents and added one in June for Hispanics.

Running round-the-clock coffee klatches is only one way to accelerate product development. The need for speed drove Coke to use an online panel to help it revive its Powerade line of sports drinks, which has just 15% of the market. Coke wanted to have the new product on the market before Pepsi took control of Gatorade, with a 77.6% market share, according to Beverage Digest. Over two months last fall, Coke asked BuzzBack for help in probing about 100 16- to 23-year-olds. Coke wanted to know if they found energy drinks as appealing as sports drinks and tested names like Powerade Psych, which won out over options like P1, P2, P3--names that were supposed to tell consumers the different levels of energy-boosting ingredients in the drink.

The results are now on supermarket shelves. The first new Powerade drink, fortified with vitamin B, launched in June. "When you're brainstorming different ideas and concepts, you can't keep going to consumers in different cities because it takes too much time," says Coke's Oza. "The Net keeps you moving forward."

Niche companies face a different problem when it comes to research: finding the narrow slice of folks that might want to buy their goods. Take Stonyfield Farm. Because its yogurt contains added nutrients and is more expensive than other brands, it appeals to only 10% of the population, says CEO Gary Hirshberg. He could never find the high-income, well-educated women that the company counts as its biggest customers through typical phone surveys and mall encounters.

Hirshberg's opinion of research is beginning to change thanks to the Internet. Web feedback may have even saved him a multimillion-dollar blunder. Stonyfield turned to the Web to test a new yogurt targeted at women. Within days, the 100-or-so women it sampled online gave a resounding thumbs-down to the name: YoFemme. They thought it sounded like a catcall women would get from construction workers. So Hirshberg returned to the Web to try another name: YoSelf. The "yes" votes poured in within two days, compared with up to two months that it used to take by traditional methods. The new yogurt launched in May.

Whether it's inventing new products or reviving old ones, companies are counting on consumers to help. And they're willing if it's as easy as clicking on a Web site.

By Faith Keenan

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