Buy The Numbers

John Malec and Gerry Eskin had a great idea for a new company. All they had to do was what no marketing-research firm had ever done before.

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It was one phone call that John Malec didn't want to make.

From mid-1977 to the end of 1978, Malec had unsuccessfully tried to assemble $3 million to start his company. His search took him to conventional sources of capital -- mostly banks -- and to unconventional ones. He met with a man who claimed to be a millionaire prince from Bangladesh. He talked to a loan shark masquerading as a New York investment counselor. He even contacted a small business investment company affiliated with the Arapaho Indians. None of these excursions had panned out, and in late 1978, the last big Chicago bank he tried had said no. The most Malec had been able to come up with was a $250,000 Small Business Administration guaranteed loan from his neighborhood bank in Barrington, Ill.

Malec had long resisted calling the people who he thought would be most likely to back him -- venture capitalists, on the one hand, and his erstwhile colleagues at a couple of big marketing-research companies on the other. Surely, he thought, these sophisticated players would understand his business proposal, and certainly most of them knew his reputation as a very brash, very smart marketing-research executive. Just as certainly, they would demand a big piece of the pie and a major say in how the plan was carried out. "It was too big a risk," Malec explains. "The reason I wanted to start my own company was to have the control."

By January 1979, though, Malec felt he had no choice. If the company was ever to get off the ground, he and partner Gerry Eskin, a consultant and University of Iowa marketing professor, needed a lot of money. So Malec telephoned A.C. Nielsen Co.'s suburban Chicago headquarters and made a luncheon appointment with the senior vice-president of the company. Nielsen, the nation's largest marketing-research firm, was big and bureaucratic, Malec figured, but at least it had plenty of cash to seed new ventures.

"Gerry and I had lunch with this guy," Malec recalls, "and I laid out the entire plan, described it in detail. At the end of the lunch, the man paused and shook our hands. Then he looked at us and said, 'This is the dumbest idea I've ever heard."

A Nielsen spokesman confirms Malec's story, adding meekly, "Yep, that's what happened." Remembering the incident, Malec grins. "I realized at that point," he says, "that Nielsen would never be a serious competitor."

What Malec explained over lunch was his personal vision of the marketing-research business, a vision that is now waking the $1.5-billion industry up from a long, lazy nap. His ambitious plan called for a computerized marketing-research system that would track consumer behavior with unheard-of accuracy, recording exactly what television shows and commercials consumers watched, then tracking what products the same consumers were buying at the supermarket.

Today Malec is chairman and chief executive officer of Chicago-based Information Resources Inc. IRI -- which ranked # 15 on the 1984 INC. 100 list of the fastest-growing public companies in the country -- registered estimated sales of $35 million in 1984, its sixth year in business. Eskin is vice-chairman, and the pair's aims are clear. "Our goal," Malec says flatly, "is to beat Nielsen, to be number one." Already IRI has fundamentally changed both the nature of marketing research and the way consumer-products marketers view the process.Its success, moreover, has forced competitors -- including Nielsen -- to scramble for a more sophisticated technological approach to the business of finding out what makes people buy what they buy.

"Perhaps we were being idealistic at the time," says Eskin, recalling the partners' early conversations over his kitchen table in Iowa City, Iowa. "We simply posed the question: 'What would make a perfect marketing-research instrument?' We set out to create the best of all possible worlds."

The instrument they created -- IRI's primary product -- is a revolutionary marketing-research service with the Orwellian name BehaviorScan. It works like this:

First IRI selects a representative sample of 2,500 or so households equipped with cable television in a market in which big packaged-goods companies like to test their new products. For the most part, these are medium-size cities, such as Pittsfield, Mass.

The company then installs an electronic device on each television in every selected household. The device monitors when the set is on and what station it is tuned to. Every night, this minute-by-minute record is transmitted to Chicago, where it is logged in by a computer in the basement data center at IRI's headquarters.

That same computer is hooked into the electronic scanners -- cash registers that read the Universal Product Code -- in every large grocery store in the test cities. When a member of the BehaviorScan sample group goes shopping, he or she shows the cashier a coded plastic ID card that looks like a credit card, and the cashier keys in the number. The number, in turn, forms the link between the consumer's item-by-item purchase record, which the store transmits, and the television viewing data, which comes from the device on the home TV. The computer puts the two together, adding in the extensive demographic information on file for each household in the sample.

As a final, Big Brotherly refinement of the system, IRI is able actually to decide what advertising the family sees. The electronic device on the television sets allows the company to cut into the regularly scheduled broadcast, substituting a test commercial -- one introducing a new product, for example -- for a commercial that is transmitted nationally over the TV network. In addition, IRI arranges with local newspapers and national magazines to print special editions for the test households. Thus, one household may get its morning paper with a cents-off coupon for a test product, while the house net door receives a regular newspaper with no mention of the product at all.

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