In retrospect...lessons learned
How market research can add more value to the business process
Of particular interest is the ratio in Japan, China and Russia. Japan is a rather captive market with high barriers of entry and a very high export/import ratio of branded goods. Bearing in mind the size of Russia and China and the early stage of development of marketing in these countries it is expected that the global market of market research will grow (in volume) based on the growth in these countries. In the cases analysed of which the studies were conducted in these countries we saw that the technical capabilities of the marketing researchers in these countries were often at par with the capabilities in the " western" world. The main difference we found was that the researchers were far more eager to learn. ALLOCATING BUDGETS ON MARKET RESEARCH When money is spent on and budgeted for market research, the way the budget is defined might provide insight in the perceived value added by market research or might even result in an indication of the required rate of return of the investments in market research. The latter appeared not to be the case; despite the fact that in the participating companies millions of dollars / euros are annually invested in market research, no one had an idea of the return on investment in market research. The expenditures on market research are part of a process and within the process it is not possible to link the financial targets to " the component of the process" called marketing insight or market research. In most participating companies the budget allocating process is divided in a more or less fixed component for tracking data and continuous research and in a flexible component for ad hoc research. The flexible component of the budget is directly related to the business planning and in particular to new initiatives and anticipated fundamental changes in the market situation or competitive arena. Because the flow of new initiatives fluctuates and because the need for data differ per phase of the development of the initiative the research budgets fluctuate as well. The information collected, in particular regarding the underlying dynamics that drive the budget, are comparable with the results of a study published in 1977.3) In some companies, in particular the US-rooted companies, there is a one-on-one relation between the research budget and the business plans. In these companies, a new initiative – e.g. a new product introduction or a major restyling – requires a standard set of study results. In these companies a business unit manager or new initiative manager knows he requires and will receive certain data when preparing a product launch. An additional element of the new initiatives driving of the budget is related to the expected margin a product or market will generate. Products with a higher margin are more likely to be supported by a larger or more flexible research budget ("it is the money a product can generate, which conditions the size of the budget"). Also regarding current products the money generated by the product has an impact on the budget: "products xxx generates $4.5 billion per year, in that respect the costs of market research are peanuts, it costs more when we take a wrong decision for product xxx, so we don't want to take the risk". A third element of the new initiatives driving the budget is the risk profile of the new initiative and the size of the investment. The larger the investment and the higher the probability the new initiative might fail, the more willing the organization is to invest in research and risk reduction. Apart from the new initiatives driving the budget, in a number of the companies interviewed there is a relation between the expected turnover or the expected contribution from the business unit and the marketing research budget. In some companies the budget was linked to the communication budget or the overall marketing budget. In the 1977 study we did find a similar relationship. There was a direct link between the research budget and the turnover. The fluctuation of the MR budget/turnover ratio over time was explained by the new product introductions. Isolating the results from the consumer packed goods companies in the current study, in order to be comparable with the 1977 study, we see that between 0.4% and 0.6% of the turnover is spent on market research. Incidentally larger percentages of 1% - 2% were mentioned but that is an exception. According to the 1977 study in 1970, 0.55% of the turnover was spent on market research and 0.44% in 1973. Based on the budget allocation process we can conclude that there is some implicit perception of the added value of market research. Interesting in this respect is the change in the person who is responsible for the MR budget. Quite a number of users of research mentioned that the responsibility for the market research budget has been moved from the market research department to the business unit manager or the product group manager. This resulted in a higher involvement and greater commitment of the users of research and at the end in higher budgets. The move of the budget to the line organisation reflects that market research is part of process from which it cannot be isolated QUANTIFYING THE ADDED VALUE," THE RETURN ON INVESTMENT" Assuming rational behaviour and having learned that value is added we tried to identify if this value could be quantified. At least the value of research should be equal to or more than the money spent. So the sum of the value generated should be equal or more than the price paid. As we learned, market research cannot be isolated from the business process it is part of and it was impossible for the users to isolate what monetary value is generated by the specific study. However they could very well identify the value generated by the total business process and they could qualify the role of market research in this process. One user summarized the situation to the point: "Market research is not generating value, value is generated by using the results". Although the cases evaluated were not randomly selected it was amazing to see that from the 30 cases analysed in 12 cases no value was generated: * Independent of the results of the surveys, which were evaluated very positively, in two cases the product was sold to a competitor and the results of the studies were not shared with the new owner. * The survey (which was initiated centrally) was evaluated positively, but the results were not implemented by country management. * The survey results indicated that the tested change of policy would not generate the effect hoped for and the results were put aside without taking action. * The results were not conclusive and hard to implement. * The results were implemented but in one case in reality did not deliver the volume/revenue estimates, so millions of dollars had been invested in capacity, which is not used. In another case a part of the forecast was not validated in reality, resulting in over-production, but not in over-capacity. Because the largest of the 30 cases was among the 12 studies that did not generate monetary value, almost 40% of the investment in market research could be depreciated. For the remaining 18 cases the end-users were able to identify or estimate the monetary value generated or to be generated in the near future. However as success has many fathers research cannot solely claim the value generated. * "The new product had not at all brought what was included in the planning. It only had a 0.6% share. The solution to realize the uptake of the product would be to get everybody in line, accept the results and conclusions and implement them in the countries. The survey results indicated that the product claims used so far did not resonate at all and were not in line with the unfulfilled needs. In addition targeting was less than sub-optimal. That message was partly expected when initiating the study, but came across in the results loud and clear. A year later 2% share was realized and a major strategy switch will double the potential hoped for in the original plans". The difference of the whole operation was estimated to generate an additional income of $ 400 million. * "We had doubts if this combination would be accepted, but the results made it clear that there really is a market and most important the team now believes in the product. The development process has now been prioritised, we are working on the forecast, but anyhow it will generate more than 200 hundred million Euro". * "We had a vague idea when we started, but everything predicted by the study happened. So that generated the extra net revenue of 20 million, straight in the pocket. Of course this is here now the success story. But most important we use the results to convince the trade channels because the worst thing that can happen is that the predictions appear to be wrong and the channels are either out of stock or over-loaded." * "We had expected that a price reduction would have generated extra volume. Before the results of the study were available the price was reduced, but nothing happened so in fact we lost a few million Euro. Later we moved the price back up slowly, as indicated by the study and we did not lose volume. We see that the effect of the extra promotions is as predicted, so now we are gaining share and the net revenue is back up. The evidence is circumstantial and the extra revenues or losses may be a consequence of the studies. Never the less it is obvious that the revenues as well as the losses are a large multiple (a hundred or thousand fold) of the cost of research. " If the forecasts over-predict you over spend on advertising or invest in over-capacity, if you under-predict you get in trouble with the trade channels and what is worse you lose a lot of revenue. That is a loss you can't compare with the costs of research". " If in an early stage we are convinced there is no potential we stop the development which saves us millions, you know what the costs are to bring a new drug to the market". VALUE ADDING PROCESS The value adding process of market research can be seen as an enabling process comparable to building a bridge. The decision-maker, based on historic data, vision and experience, might have known where he/she wanted the business unit to arrive or might have known the likely marketing decision to be taken. The "study" or marketing research is the bridge build to cross the valley of risks. The following intriguing quote was taken from the internet:4) " When you see a bridge, you may ask questions such as "Why did they build it? And "Why did they build it here?" Building a bridge is a substantial investment in materials, time and energy, and except for very light and simple constructions, not to be undertaken lightly. Bridging a gap may be short-term undertaking of utmost importance, most likely during a war, or it may be of long-term strategic or commercial importance, justifying the greater investment in a permanent structure". When evaluating the value adding process of market research we looked at the springing, the span and the landing of the bridge. Bearing in mind that "the product is what the product does" for the users of research by far most signs of value regarded the landing. As stated before the value perception all comes down to the impact of the study. The landing The presentation and recommendations are often the only tangibles based on which the end users evaluate whether or not value was added. In the interviews positive feedback was often combined with a genuine criticism regarding market researchers: "They overload you with data and hundreds of slides, without an interpretation or conclusions", "It looks like researchers don't have the guts or the qualities to draw conclusions", "It is the sheer volume of information returned to the client, which is overwhelming, but how should we prioritise. Agencies must realize that it is all about accountability, as only the impact counts and they are accountable for the impact, Agencies always start with methodology and techniques, marketers hate that, they want answers to their questions". Analysing the cases and the reactions of the end users, the key deliverables – the presentation and the recommendations generate most value – when: * The business question is answered in a clear and simple manner. One should focus and stick to the primary business question and always keep in mind why the study was initiated. In addition one should speak the " (business) language" of the client. * The results are consistent and in line with other information the end user has. In case the results are not in line the differences should be explained. * The results are the interpretation of the data, "why is the proposition appealing to the consumer and what does it mean to the position, to the volume or total revenue". * The presentation is simple and to the point, it is better to slice the presentation in different presentations for different audiences than to show everything you can say. In addition to the presentation it is also the usability of the results and the possibility to implement the results that was identified as the key driver of value. When users reacted positively they mentioned that the study was still used, or that "in reality the results were proven to be true": "A year after the implementation of the study we compared the forecast with what happened in the market and all trends and changes were predicted in the right direction. We use this case now to show what the value is of this tool". "We implemented everything and in reality everything happened as predicted, it is now the success story". "People still go back and ask additional questions" Examples of a negative or false landing also indicate that it is the deliverables that were responsible for the lack of value: "The conclusions were not conclusive, people are struggling with it, too many options where to go were shown. So regarding the main objective the results were not actionable". "The results appeared to be totally wrong and an enormous over-estimation. It is good that we found out why so we learned something for the future, but you lose confidence". There is one value driver at the landing, which is valued very high by the endusers, viz. comparing and benchmarking the results. Researchers within the client organization have access to various sources so it is very easy for them to generate value in this respect, but also researchers in supplier organisations have the opportunity to compare cross company and cross industry. This is the type of interpretation the end-users are looking for. The comparison or the benchmark is not only just a figure informing the end user if (s)he is at par, better or worse, it is also a reality check: is it true and how does it compare to others? In a way the comparison provides a guarantee. However if the " guarantee element" is dominating one could argue whether market research is really adding value. The guarantee provided by the benchmark is comparable with the ABS or "anti blocking system" and the "airbags" on a car. Car manufacturers did put the ABS stamp or airbag logo, a safety guarantee, on the car and in the 1980s and 1990s it increased the value of the car. However airbags and ABS became standard features and the extra value became a generic requirement. It mainly adds value in crash situations, which should be prevented anyway. The springing A number of end users realized that the value generated at the landing is directly related to the springing of the bridge and the design phase. Knowing that market research is conducted to enable decision-making and answering business questions it should be clear precisely what business questions should be answered. There were four attention areas in the design phase and at the springing of the bridge that generate value at the landing. 1. Understand the market with its specific characteristics, metrics, dynamics and know the type of problems and issues that are of relevance to these problems. "It generates trust and you see the problem is analysed thoroughly", "when you speak the language people tell you what they really want to know". "It is an advantage when research agencies has worked in this market before, so we don't have to explain everything and can come to the point". 2. Listening and specify precisely what the problem is and the business question to answer. This reflects the interaction between users of research and the researchers. And the interaction could be criticised from both sides. Some end-users said "market researchers don't listen, they have to listen what precisely the question is. Of course the business question has to be translated into a study with specific study objectives, but at the end we want them to answer the business question. However in reality often they stick to the research problem they created themselves and don't go back to the business question". "They don't listen and don't ask questions". However when we analysed the request for proposals of the 30 cases only in a few cases was the business question to be answered defined in detail and in a number of RFPs the question was lacking completely. This cannot be an excuse for not focusing on the business questions, because when it is the researcher's responsibility to create value and to answer the business question (s)he should chase the end user and discuss and analyse the business question in depth. In this respect the role of the internal research coordinator can be very important. We saw that in the companies where the research coordinator demands upfront before the survey is initiated / contracted that the end users specifies what (s)he will do with the results, what decisions (s)he will take and how (s)he will implement the results, market research did add more value. The fact that the business question and the decisions to be taken are defined upfront does not dismiss the agency from digging deeper and trying to understand the business question as well. In one organisation the international research coordinator, who always participated in the business planning meetings, not only asked to specify the decisions to make upfront but he also pinned the end users to the decisions. If the results were not implemented as planned they had to explain why. This appeared to be an initiative that boosted the value generated. 3. Market research is part of a process in which other functions involved in the implementation of the results are active as well. As these functions (clinicians, communication experts, business planners) have to implement the answers to the business question they should be involved in the precise definition of the survey. If they meet upfront with the market researcher and jointly discuss the business question to be answered the effect is: * a more thorough analysis of the problem and a more precise definition of the business question * you get buy in with the answers provided and a greater chance the results will be implemented: "if you involve them in the beginning you create value at the end". 4. Technical competence to identify the limitations and the feasibility. It is expected that the researcher knows what is feasible and what is not and that (s)he is able to relate this to the expected usage of the results. However in the take off phase there are so many issues managers want to know that they, as well as the researchers, tend to forget what the real business question is, because everything we want to know is of interest. Besides in the take off phase the researcher also wants to close a deal or wants to be contracted. This might have an impact on his/her willingness to accept and may lead to over-designed, or loaded studies. Of the 30 cases analysed, two cases could clearly be qualified as over-designed. And both studies ended in the category of cases with a limited added value or a less satisfied client. The importance of a "feasible" design that allows the study to generate value is shown in the comparison of two cases. The clients are competitors in the same market. In one case study the pricing question was dealt with in isolation (a focussed design to measure price sensitivity with three additional demographic questions) and in the other case study a comparable price sensitivity module was used, but it was only one of many issues dealt with. The small study was completed over the internet, the other face to face. The price sensitivity results of both studies were identical. However the small study generated very positive reactions, but afterwards a lot of questions for detailed analyses (per outlet or user group) were also asked. These relevant additional analyses were not possible, resulting in a sub-optimal usage of the results. On the contrary the over-designed study generated far less satisfaction despite the fact that the pricing questions was answered in detail and enabled a detailed implementation. On hindsight for the small study the business question should have been analysed and refined more in detail as one could have known that the additional questions would come up. For the large survey it is the question if the pricing module should have been included. Although pricing was related to the main business question it was not the key business question to answer and the survey should have focussed more on that question. The span The span between the springing and landing reflects the research process itself. This is where market researchers often focus upon. As real engineers they discuss the beauty of the bridge, they discuss the advantage of concrete over iron, the advantage of an arch bridge over a beam bridge or of a cable-stayed bridge over a cantilever bridge. Although this is very relevant, the end users of research do take this part for granted, they assume the bridge is strong enough, the study is objective and valid. Only when the business questions are not answered or when the results are questioned do they look at or start questioning the span. During the interviews we have tested some suggestions to improve the span: to improve the quality of the data and/or to increase the usability of the results. For the end-users the suggested improvements were hardly of relevance. Sure it is a differentiator when comparing agencies, but the end users are primarily interested in the answers to their business questions and in the usability of the results. Only if it is proven that the end-user can do more with the results investments in improving the research process are valued. The fact that the span is taken for granted by the end users does not mean that it does not add value or is not of relevance. It only means that it is seen as a necessity or minimal requirement. The value is mainly proven in a negative context, when the span breaks or tumbles down or when the span only allows a part of the issues or problems to reach the landing (or to be solved). Building bridges is the role of the market researcher so (s)he should choose the span, improve the span and improve the efficiency in building the span. IMPROVING THE PROCESS AND LESSONS LEARNED Value is generated in the implementation of the results and it is the deliverables (the landing) that drive value most. During the interviews and in the analysis of the cases we learned that there is a need and room for improvement. On the client side Most value was generated when the results of market research is really digested, implemented and integrated in the plans and activities. In order to increase the value of market research it is essential the end users and the organizations they work for internalise procedures and systems in order to maximize the usage of the study results. As market research is an investment in knowledge and insights, corporate management or business unit management should be held responsible that the investment is capitalized. They should control that the studies contribute to the decisions to be taken. This implies when investing in research the decisions to be taken and the " answers" on which the decisions will be based are specified up front. When the process is completed what has been done with the results (and the new insights) and how the results contributed to the process should be controlled. Because the contribution of market research cannot be estimated in isolation these evaluation procedures must be integrated in the marketing or business planning and control process. Being part of a more comprehensive process has the advantage that not only the answer on which the decision is based is evaluated but also the decision itself is evaluated. This way market research becomes part of a systematic marketing control system. In the past researchers controlled the budget and had greater liberty to spend it. With the transfer of the budget to the line functions or the business unit the focus of the studies have been more on the problem as specified by the business unit. This has an impact on the role of the internal market researcher as well: if (s)he can stay independent (s)he is becoming a consultant to the problem, whose task it is to help the end users to define and specify the problem in detail. The problem analysis component is becoming more dominant and is directly related to the implementation of the results. We believe that at the client side the person who combines the technical excellence with the marketing knowledge will become the strategic marketing insight manager who reports to the CEO and who will be responsible for the systematic marketing control system. The marketing researchers in the business teams will report to the business unit manager but also to the strategic marketing insight manager. Supplier side and supplier client interaction In order to precisely answer the question the researcher should be part of the team or there should be a three-way discussion in the design phase and at the landing between the end-users, the internal market researcher and the researcher from the agency. If the end-user and the persons who design and analyse the survey only communicate indirectly, the primary business question cannot be analysed and understood in detail and it is likely the answer will not fit the business question completely. The changes at the client side will also have an impact on the supplier side. In the past the interaction between the researcher at the client side and the agency researcher mainly regarded research technical issues. In other words they were focussed on the span. To add value the focus should be on the landing (what business questions should be answered) and the total construction: Where should the bridge and in particular the landing be located, what type of bridge is needed? There is a strong need for researchers who have the capabilities to define where the bridge should be located and how it should be designed, the so-called marketer-methodologists This need is amongst others reflected in the average salaries of the different functions in a market research organisation (both at client and agency side, see also the AMA website). When we compare the salaries of a senior market researcher with the salaries of the marketing methodologist (the person who combines the analytical capabilities to design " bridges" with the marketing know how) we see that the latter earns twice as much as the first. This might reflect the shortage, but we believe it mainly reflects the value added by the function. In order to be a partner at the agency side we shall find more marketermethodologists in the front office. They will be the consultants to the client who provide evidence based / facts based insight. Both at the client side and at the agency side there will be juniors as well: researchers, analysts, project managers, etc. who have to learn and grow into the senior position. The difference with the past will be that the functions will be organised to support the core task: providing answers to business questions. FOOTNOTES 1. Fisk, G. (1974). 2. Samuels, J. (2003). 3. Huisman. D. (1976). 4. WWW.brantacan.co.uk/bridgelocation.htm Bridge Location - why build it here? REFERENCES Fisk, G. (1974). The function of marketing research. In R. Feder ed.: Handbook of Marketing Research. McGraw-Hill. Huisman. D. (1976). Opkomst and Neergang (Rise and fall of the market research expenditures within a company). Jaarboek van de Nederlandse Vereniging van Marktonderzoekers, Universitaire Pers Rotterdam. Samuels, J. (2003). ESOMAR Annual study of the market research industry in 2002. Esomar, Amsterdam. THE AUTHOR Dirk Huisman is Chairman and founder of the SKIM Group, The Netherlands. |
 Applied methodologiesTechnical papers |
#02
Multinational producer of household products
#02 "SKIM provided us with clear insights into what
we should and should not do with our products.
Our team now knows what to do"
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When more than €17 billion is spent on market research per annum 2) there cannot be any doubt that market research is adding value to the business process. However market research is part of a business process from which it cannot be isolated. Value is generated in the business process, where the results are being used. In other words market research does not generate value in itself, using the results generates value. On balance, in the 30 cases examined, millions of monetary value was generated and a double-digit return on investment was realised. Nevertheless, in 12 of the 30 cases no monetary value was generated and 40% of the costs of research, even when the studies were evaluated very positively, could be depreciated.