Qualitative analysis refers to using subjective judgment to analyze and assess a company’s prospects or value. The conclusion is based on non-quantifiable data, such as labor relations, development and research, industry cycles, and management expertise.
Qualitative analysis is not to be mistaken for quantitative analysis, as the two terms differ by the focus of the research. On the one hand, qualitative analysis deals with non-quantifiable information, while quantitative analysis focuses on raw numbers and figures found in various forms of reports, such as balance sheets.
Both techniques are widely used together by many organizations to ascertain a company’s business operations and see if it has the necessary potential to become a lucrative investment opportunity.
- The qualitative analysis relies on using subjective judgment based on non-quantifiable or “soft” information.
- The qualitative analysis focuses on inexact and intangible data that can be challenging to gather and examine.
- Since numeric values can’t define such intangible variables, machines conducting qualitative analysis must overcome many obstacles.
- The qualitative analysis relies on two driving factors – understanding company culture and people.
- The best way to run a qualitative analysis of one company is to take a customer-centric approach and understand its competitive advantage.
Basics of qualitative analysis
Quantitative and qualitative analysis differ in their approaches as the differences between the two are very similar to the distinction between artificial and human intelligence. So, a quantitative analysis utilizes specific inputs such as earnings multiples, debt ratios, profit margins, etc.
These can be incorporated into a computerized model to get the most accurate result, such as the fair value of a forecast or a stock for profits growth. But, for the moment, humans are the ones who write the program that analyzes these numbers, and that includes relying on subjective judgment up to a fair degree.
Once they are programmed, computing machines can perform thorough quantitative analysis in less than a second, while it could take hours for even the most highly-trained experts to do the same thing.
In comparison, a qualitative analysis uses inaccurate, intangible information that is more fitting in the experimental and social area than the mathematical, calculating one.
The qualitative approach is based on the type of intelligence that computers lack. Things like cultural shifts, competitive advantage, customer satisfaction, management trustworthiness, and positive aspects of a brand are virtually impossible to analyze by relying on numerical inputs only.
Understanding people and qualitative analysis
Qualitative analysis is almost like having a hunch. It is pretty much the same as listening to your intuition, and according to many expert qualitative analysts, instinct is one of the critical elements of the process.
However, don’t make a mistake and believe that this type of analysis isn’t a rigorous approach. On the contrary, it is pretty strict, and it takes so much energy and time to complete it. It’s also the reason why qualitative analysis is a more complex process than quantitative analysis.
People are vital to this process. For an investor to take action, they must first know how a company’s management works, including their professional and educational backgrounds.
Experience in the industry might be one of the most crucial factors when an investor considers investing in some company. In other words, it’s the company’s record of prudent decision-making and hard work that matters the most, as well as their connections with the right people in the industry.
Additionally, their reputations greatly matter, including how respectable and reputable they are with their peers and colleagues. Finally, how well-connected they are with their business partners can tell an investor many things and significantly impact future operations. With all this in mind, we can safely say that people are the lifeblood of qualitative analysis.
Company culture and qualitative analysis
In today’s modern, customer-centric business world, how employees feel about their organization and its management is essential to building a positive brand image. If employees resent the administration, that is not a suitable company to work with.
On the other hand, if employees are motivated and satisfied and can say nothing but positive things about the firm that employs them, that is a clear sign of healthy company culture and a suitable work environment.
It is possible to measure the employee turnover rate and ascertain how loyal they are to their organization. It can also indicate their lack of loyalty, including the reasons that led them to that decision. Workplace culture can say a lot about one company.
If a company is overly hierarchical, it will promote productive energy, competition, and intrigue. These factors combined lead to an unproductive and unmotivated work environment with unsatisfied employees who worry about nothing but getting off work rather than being productive. A company has to provide its employees with a thriving, creative, and vibrant culture to attract top talent.
Gathering data for qualitative analysis
It’s not a secret that gathering data for qualitative analysis comes with many challenges. For example, fortune 500 CEOs didn’t make a name for themselves by sitting down with various retail investors for a conversation or taking them sightseeing around the corporate headquarters.
At the same time, there are people like Warren Buffett. They effectively rely on qualitative analysis simply because people trust them and are willing to extend their information and time. But, unfortunately, things aren’t that easy for the rest of the world.
To get their hands on quality information, most people have to invest a lot of time, effort, and resources to browse countless companies’ filings and news reports to find meaningful patterns in managers’ philosophies, strategies, and records.
It’s possible to get some insight into corporate communication styles and strategies by going over a company’s quarterly earnings conference calls and its 10-K filing section that involves the management discussion and analysis.
Such information can be precious as it allows the analysis experts to dive deep into coherent business strategies and transparent communication. Moreover, this is a much more detailed solution when compared to relying on short-termism, evasiveness, and buzzwords only.
The context of qualitative analysis
Since consumers are the source of a company’s revenue, they are the only driving factor more crucial to business success than employees and management. Therefore, if a business puts consumers’ needs before shareholders, that may be considered a better, more lucrative long-term investment.
If feasible, putting yourself in your customers’ shoes may turn out to be a good strategy. So let’s take a look at one of the great investing ideas. Let’s imagine for a moment that some investor is looking to invest in an airline company.
They can see how profitable and organized that company is by simply going over their business plans to buy back shares, achieve the most significant earnings estimates over three consecutive quarters, and have reined in costs.
While all this may sound like a fantastic investment opportunity, things change considerably when using the airline. You end up dealing with resentful customers, nominal extra fees, ineffective customer service agents, and a bug-ridden website.
With such a negative experience, the only thing you can conclude is that the airline isn’t the best investment opportunity due to the lack of priority for its customers. The key to finding a lucrative investment opportunity is to take the two most vital elements of qualitative analysis into consideration – a company’s competitive advantage and business model.
Let’s take a look at some of the most critical elements that give companies a competitive advantage over their rivals:
- Coming up with the most innovative technology that competitors can’t replicate or compete against;
- Having the most advanced intellectual property protection solution;
- Using a practical, customer-centric approach to address the main pain points of their consumers and provide solutions that can help them solve their real-life problems;
- Building a positive brand image and reputation across all available channels of communication and social media platforms to achieve the highest level of brand recognition;
- Becoming an authoritative force in their industry and ensuring a safe place in the worldwide market in the future;
If other companies can make their entrance into an industry or a market by doing what leading companies do a little bit better, solid proof that the main barrier to entry may be set too low.
This leads us to the following conclusion – if an unestablished organization can quickly enter and disrupt its chosen industry and market, it’s only a matter of time before another competitor emerges and replaces them in turn.
A real-world example of qualitative analysis
The main goal of quantitative analysis is to analyze and measure the key metrics and all other available parameters, while qualitative research helps to understand them better. This analysis requires a holistic approach and a fact-based overarching setting where context is key to understanding the processed information and its narrative.
While there are always exceptions, specific indications should be taken as red flags. For example, if a CEO doesn’t have a proper background, that could be interpreted as a red flag.
Also, If you plan to invest in a company with a college dropout as a CEO, that probably isn’t the best idea; however, there are apparent exceptions of successful college dropouts such as Steve Jobs and Mark Zuckerberg.
The same goes for McDonald’s and Silicon Valley. No matter how good you are at analyzing all sorts of factors and metrics, having a look at Mcdonald’s Corp’s financial statements a few years ago would have shown you nothing about the negative backlash against unhealthy, cheap food.
If you base your analysis on a purely qualitative approach, the chances are that you’ll come across many personal biases and blind spots that can prevent you from seeing the clear picture. That is why it’s best to combine both qualitative and quantitative measures to ensure you eliminate all obstacles.
Advantages of qualitative analysis
Qualitative analysis is based on qualitative research principles that entirely rely on various methodologies that help analysts gather information with greater accuracy. Because of that, such an approach provides quite a few advantages for a wide range of organizations that depend on the ability to find new data.
1. Qualitative analysis helps understand consumer patterns
Consumer patterns are hard to track as they often change so rapidly. Since these changes happen so suddenly, many organizations have problems coping with such a quick pace. Qualitative analysis (research) can help an organization understand the main reasons why these changes shift so fast.
It can provide valuable insights that can allow an organization to find the best way to adapt to the perspective shift and improve the way businesses maintain customer relationships.
2. Qualitative analysis helps generate up-to-date content
Presenting old content in an attention-grabbing way can be extremely challenging, no matter how experienced a marketer is. Content-related trends and requirements change so fast that it is easy to lose track.
Fortunately, qualitative analysis helps you target specific socioeconomic demographics to gather truthful information on the matter. Then, you can use that information to get accurate ideas that you can easily convert into actionable, accurate data that can be used to create up-to-date, customer-centric content. That helps a business convey the brand message in a way that will resonate with the audience.
3. Qualitative analysis is cost-efficient
Qualitative analysis is a bit faster and simpler when compared to other analysis methods as it can be performed on smaller sample sizes. Because of that, it allows analysts to collect more information from such a sample which leads to lower operational and analysis costs. Thus, aside from being cost-efficient, it also produces much faster results, saving time in the process and helping improve decision-making.
4. Qualitative analysis helps gather industry-specific insights
The two essential elements of consumer retention are customer engagement and relationships. Modern businesses use qualitative research to pick the most accurate insights that help them improve engagement and relationships by ensuring that their communication to their target audience is authentic.
The information that businesses gather from qualitative analysis helps them find ways to improve their reputation, add value to their services and products, and adjust their communication to better their consumers’ needs.
5. Qualitative analysis incorporates the human experience
Statistical facts are crucial to identifying the latest transfers across industries in the world of analysis and research. However, that doesn’t mean that the human experience should be ignored. On the contrary, it can help a business see the same situation in many different ways.
While statistics may be a very complex type of data, it’s possible to simplify the information by using qualitative analysis to incorporate such data into the collected research and get valuable insights that can do wonders for the decision-making process.
In such an order of things, every perspective is valuable and should not be overlooked. This is how businesses make conclusions with increased accuracy, allowing them to make better, more informed decisions.
6. Qualitative analysis is flexible
The process of qualitative analysis isn’t set in stone. It isn’t bound to any rigid structure. Instead, it can be adjusted to the needs of specific organizations as it relies on seeking emotional responses and accurate data.
Thanks to such a high level of flexibility, analysts can generate more complexity and depth to the data being gathered. Because of that, this type of analysis can be easily tailored to the kind of data being provided.
7. Qualitative analysis provides predictive qualities
Consumers with similar purchasing habits tend to purchase similar products. Since qualitative analysis is based on such prospective data, it can provide predictive qualities that can help businesses understand what makes their consumers unique, their preferences, thinking patterns, purchasing habits, etc. Brands rely on qualitative analysis to develop customer-centric services, products, and messaging to provide more excellent value to their target audience.
8. Qualitative analysis allows you to collect detailed-oriented data
No matter what analysis method you’re using, there are always particular challenges and restrictions regarding the data-gathering process. If you need to create measurable insights for a predetermined period, you need a method that allows you to focus on data subtlety rather than on a specific metric.
Qualitative analysis allows you to gather as many details as possible, regardless of whether those details fit into a specific framework or not. Thanks to that, you can get more genuine insights from your analysis.
Gathering personalized and unique data has never been more critical than it is today. It is the most effective method to understand how your target audience thinks on a deeper level. However, since the nature of data is subjective, its integrity and reliability can be pretty questionable. Qualitative analysis allows you to ensure the information you collect is up-to-date, accurate, and relevant to your business strategies.