Four teams of four people each sit around a conference table at a corporate headquarters. The teams represent competing brands and they are about to play a “retail war game” organized by Kelton Research in Culver City.

Game play starts when a Kelton moderator announces a change in the marketplace – for example, a shortage of raw material that makes costs and prices skyrocket. Then the team for Brand A, consisting of marketing executives from the company that has hired Kelton, explains how they would react to this development. The teams for Brands B, C and D, consisting of Kelton consultants pretending to be competitors, follow by describing their reactions.

Finally, a technician puts the responses into a computer and calculates how the strategies would change each brand’s market share, profitability and consumer preference rating. That data forms the foundation for the next round of play.

Kelton, a boutique market research firm specializing in combining data and psychology, has produced games for clients in the retail, beer, pharmaceutical and video game sectors, but the names of the clients – as well as game results – are confidential.

The purpose of the game is to give marketers an idea of how their decisions will play out in the real world. Tom Bernthal, Kelton chief executive, said that the game can be compared to chess because players have to think three or four moves ahead.

“After playing, clients have a game plan,” Bernthal said. “It’s the way NFL teams have worked for years, but I don’t think it’s ever been done to this extent in marketing.”

Client companies pay well beyond $100,000 for a game that usually lasts two full days in the conference room.

After the game, Kelton gives the client a playbook, which is a report explaining how the client should react to changes in its market or by competitors. Because the game exposes a brand’s vulnerabilities, the playbook – as well as details of the game’s play-by-play – are kept confidential even in the company’s marketing department.

“Marketing strategy is evolving more quickly than ever before and the game shows how none of your decisions happen in a vacuum,” Bernthal said. “When you do something, your competitors will react.”

Kelton has applied the technology behind the game in other applications. For example, the company is working with L.A.-based Pom Wonderful to calculate how buying habits would change if consumers knew that Ocean Spray had lower pomegranate content than Pom. The information will help estimate damages if Pom wins its false advertising lawsuit against Ocean Spray.

Casey Burnett, director of the L.A. office for advertising consultancy Roth Associates, said advertisers are eager to experiment with out-of-the-box research tools. The timing is great for Kelton’s war game. However, eventually the game will have to provide valuable information to justify its cost.

“Smaller companies have to prove that their insights are just as good if not better than what the large research firms offer,” Burnett said. “The game is very interesting, but I don’t think it will supplant primary research such as customer surveys and focus groups.”

Internet surveys and panels can tap into customers’ minds at a much lower cost than traditional questionnaires or focus groups.

“These online tools and direct feedback from consumers can be very valuable for advertisers,” Burnett said.

Kelton, which was founded in 2003, developed the war game product last year because customers said they needed to react to changes in the market much faster than ever before.

“We have huge consumer brands asking for us, but we can’t say yes because our current clients are giving us more and more work,” Bernthal said. “We charge what we need to so the model works.”

Gaming the system

During the economic downturn, Bernthal applied competitive market analysis on his own company and decided to position it as a high-price boutique research firm. The company’s revenue more than doubled between 2009 and 2010, with most of the growth coming through larger assignments from existing clients.

The company has 37 employees, up from 22 in 2009. Some of its recent hires include Kieran Walsh, who formerly ran online ad agency Digitas Health; and Vada Hill, the former chief marketing officer at Taco Bell who developed the talking chihuahua “Yo Quiero Taco Bell” campaign.

Bernthal declined to name the clients who have played the war game, but he said in general his roster includes AT&T Inc., McDonald’s Corp., PepsiCo, Pfizer Inc., Continental Airlines Inc., Walt Disney Co. and NBC Universal Inc.

Bernthal said the company is determined to remain small and independent from the large ad conglomerates.

“An M.B.A. class would fail our business plan and long-term strategic goals, but we don’t want to make a commodity of our work,” Bernthal said. “We’re not trying to be the biggest firm, just as big as we can be with a boutique approach.”

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