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Can You Prove Your ROI on Marketing Research Spending? 

Bob Kaden | Sep 13, 2007 1,828 views 11 Comments

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Marketing research has always been considered an expense. The prevailing feeling is that the return on monies invested in research cannot be measured. Therefore, it’s easy to write off conducting research in favor of allocating funds to areas where measuring results are more precise.

Good research guides companies in making the best decisions possible. Research can determine which of say ten new products stands the best chance of success. It can determine areas where improving service will make customers happier. It can optimize advertising messages so that prospects would be more likely to buy. But these actions don’t often lead to precise ROI determination.

In fact, researchers haven’t been particularly successful in quantifying the dollar for dollar return resulting from well-designed surveys or focus groups into these kinds of issues. The real question, it seems to me, is could they? Perhaps more importantly, should they even make the attempt?



Advertising is an expense but many companies wisely increase their ad budgets when sales are soft. Sometime they don’t know if ad budget increases will help but they know losing consumer awareness is great way to watch sales spiral down even more. What they have is faith their advertising investment will produce a reasonable ROI.

Sale and promotion budgets are often considered an expense that is difficult to measure but research is usually ignored long before risking a cut in these areas. What isn’t ignored is faith that when conducting frequent sales and promotions, ROI will be justified.

Adding operations staff in order to better serve customers is certainly considered an expense, but there is faith that better service will lead to increased sales and the ROI will be easily rationalized.

For these areas faith is often good enough. But the black box mentality that prevails often prevents companies from allocating funds for research at the very time it can do the most good.

So, what is the ultimate ROI then in regard to research? Try this thought.

ROI on research comes from being smarter when making important marketing decisions about your products or services. When it comes to research then what you should be measuring is your ROI on wise decision making? Here’s an idea.

Take a product or service and study the devil out of it. Take a period of time, say 6 months, and have the foresight to let good research dictate your marketing direction. Take another product and service and cut the research budget to zero. Make decisions based on gut, intuition, and entrepreneurial spirit. If you do better without conducting research, you’ll have your answer.

Want to wager where you’ll get a better ROI?

I’d love to hear you thoughts on measuring ROI when it comes to research. Got a better approach?

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11 Responses to Can You Prove Your ROI on Marketing Research Spending?

  1. Alison Bond September 25, 2007 at 5:51 am (2 comments) #

    I have conducted many research studies over my twenty odd years in research and have drawn the following conclusions. Organisations do research for a number of reasons, but lots of them do it to delay decision making, avoid reasponcibility and prove themselves to be right or others wrong. If I meet a client who is after this type of research then I know I will not get the project. There are lots of big research agencies who enjoy this type of work and the client companies who want this type of output know who they are too.

    However there are other organisations, well not organisations as such, more brave individuals in organisation, and these are far fewer, who do research because they want to direct the organisation in a better direction. They want to understand the core of why people use their services and big up that aspect of their offering. To do this requires a good technique and insight skill in defining what the heart of the offer is. Very few big research companies can offer this because they need to sell large scale surveys using cheap labour. This type of painstaking, questioning research needs expertise, patience and a very supportive client. But the ROI from this sort of work is huge, when properly applied. It is als very difficult to spot what has created the new value which appears in the business because so much of the value is in the implementation. It is not what you do but how you do which makes the research succesful, and the how has to be culture change in the client company, and the credit for this must go to the brave individuals in the client who have opened themselves up for forensic examination, and then acted upon the results. The research company can’t take credit for that, and if they are good enough, will be on to their next secret mission to improve by then.

    So the answer is “yes” I have been involved in some amazing roi’s but it has happened not because of the research, but by using research as an ingredient in a potent mix of thought, action and behaviour change, then it really works.

    Alison Bond, http://www.abaresearch.com Joint author of Consumer Insight

  2. Bob Kaden September 25, 2007 at 1:01 pm (22 comments) #

    Alison…thank you for your thoughtful comments.

    I certainly am in agreement that ROI on research is big when properly applied. And yes,many companies misuse research in an attempt to support hidden agendas or previous decisions, be they good or bad.

    But research ROI has always been judged qualitatively. If a company THINKS it’s getting value from it’s studies it will (usually) continue the process. If not, research is often ignored or downgraded in importance.

    What the research industry has failed to do is develop processes and quantitative models that actually prove that decisions made as a result of research can be traced to the bottom line. While I fully appreciate the difficulty in doing this, I would nevertheless throw down the gauntlet.

    For research to take it’s rightful role in decision making, researchers must strive to prove the bottom line value of their studies. Otherwise researcj will continue, as you say, to be used “as an ingredient in a potent mix of thought, action and behaviour change” And as a result research will continue to be much misued when findings run contrary to those pre-conceived notions and hidden agendas.

  3. Michael Lowenstein September 25, 2007 at 11:36 pm (18 comments) #

    Gone are the days when clients would accept that customer research key drivers automatically connect to marketplace actions. Increasingly, clients want their research to monetize: that findings and conclusions have proven linkage, with high and consistent correlation levels, to key financial metrics. By focusing on customer commitment and advocacy behavior, we have been able to tie our key customer research findings and conclusions directly to financial results. Further, we can conduct simulations, or ‘what ifs’, on the results of our models to offer further insight into financial outcomes.

    Michael Lowenstein, PhD CMC
    Vice President and Senior Consultant
    Harris Interactive Loyalty

  4. Graham Hill September 26, 2007 at 1:45 am (992 comments) #

    Robert

    In my dual roles as a consulant and interim manager, I am a firm believer in basing actions upon robust research insights. They have helped me make many profitable decisions in the past and no doubt will continue to do so in the future.

    But we must not forget that research (and model building in general) is only a simplification of how the world works, often a very localised simplification, not an accurate representation of the complexity of a business system as a whole. If you take a jigsaw puzzle analogy, research provides a few pieces but rarely the whole picture. And it is the whole picture that you need to recognise before you can take appropriate action.

    As a research buyer, I am suspicious of any research company claiming this ROI or that increase in profitability as a direct result of their research. There are just too many things that researchers just do not know and are not capable of understanding to make such claims.

    For this reason I prefer to work with smaller research companies that really know my clients’ industries, that really understand how business works in the industries and that can do halo-effect proof studies that deliver actionable insights. The corresponding action and future cashflow growth are up to my clients.

    Graham Hill
    Independent CRM Consultant
    Interim CRM Manager

  5. Alison Bond September 27, 2007 at 8:54 am (2 comments) #

    The issue of “proving” the benefit of research is a difficult because research has to be part of the mix, not an end in itself. For something to be proved requires some kind of transactional measure to be in place, if it is specific tangibles which are required as a result to the measures. What I know from my detailed research in this area is that organisations follow their measures, and the measures which organisations are addicted to at the moment are process / transactional ones. Therefore if measures are put in place to prove that something has been effective then they are likely to be transactional measures and if you measure transactions, and organisations follow their measures then they are going to get busier and not nessesarily better. Therefore it is important that the improvement measures are benefits based as that is what people buy, and the better outcome.

    We do measure benefits and have proved that research can be used to increase those benefits, and therefore profits. We have a number of case studies spanning several years where we have proved this case. However getting transactionally addicted organisations out of this cycle and focused on benefits is very tough, especially when there are many more companies out there for whom it is vital they keep those same organisations focussed on process and transactions as this is how they make their money.

    When we see a need to focus on the intagible benefits and away from the macho world of transactions then ROI from research will be much easier. In the meantime we need more people like you raising the issue and challenging the status quo of big agencies pumping out dubious research, with “monetorised” results. Those results are monetoried but on a flawed premise.

    Alison Bond http://www.thehaloworks.com http://www.abaresearch.com

  6. Bob Thompson September 27, 2007 at 8:31 pm (875 comments) #

    Taken literally, ROI means return on investment, which implies some kind of financial calculation. We invest this, we got that.

    In my experience, there are lots of ways to do such calculations, some very simple (payback), others more complicated that take into account the time value of money (NPV and IRR).

    Do executives use such calculations? Sure. But I’ve also found that the more strategic the investment, the less likely it is that a spreadsheet will give you the answer. How are you going to prove that being customer-centric will pay off on the bottom line? Good luck.

    I think marketing research, which to me includes operational voice of customer programs, is an essential way to listen to the market and to gain customer insight. Executives looking for absolute “proof” that research is a sound investment won’t find it in an ROI equation. But those that appreciate the strategic value of research will make the investment anyway, because not everything that counts can be counted.

    Bob Thompson, CustomerThink Corp.
    Blog: Unconventional Wisdom

  7. Bob Kaden October 1, 2007 at 12:54 pm (22 comments) #

    I’ve written that the research industry should find hard quantifiable models for proving the value of our studies. Only in this way, I opine, will researchers become a force in their companies.

    In the 9/25 edition of Advertising Age, Jack Neff penned an article entitled R-E-S-P-E-C-T. Why Market Research Doesn’t Get It. He writes, “Marketers need good research more than ever. It has never been more important. Yet market researchers are as unimportant as ever—at least within their organizations. Like moguls with trophy wives, marketers keep collecting them and keep ignoring them.”

    Neff goes on to point out that researchers occupy a relatively low status in companies largely because of their inability to convince management of the value of research.

    In trying to make a case that researchers should strive to prove their studies can make a difference, I’m happy a number of you have taken time weigh in on the subject. The prevailing feeling though seems to be that research is a soft discipline and its value cannot be precisely calculated. That it is but an ingredient in the decision making process and shouldn’t be expected to be more than that. That it’s value is not subject to payout calculations.

    I was particularly taken by the comment of one individual who wrote that “everything that counts can’t be counted.” The point of view here is that research helps us get closer to customers and prospects and while providing powerful decision making insights is, again, not subject to ROI calculations. While this perspective is certainly true at this time, it does little to help the cause.

    So, what to do? As researchers do we continue to wallow in disrespect? Do we allow ourselves to slide further into irrelevancy? Well…not me. My goal is to find relevant ROI measurements that boost the status of us “lowly” research types. That allows us to grow the importance of what we do and take a rightful seat at the boardroom table.

    It’s our fault we’ve let it come to this and it will not change until we find ways way to prove the value of what we do. Maybe it’s in developing more potent predictive models? More likely it’s in developing stronger approaches to the planning of research? Ultimately, I’d wager it’s the way we process our findings?

    It’s somewhere. Don’t stop talking to me!!!!

  8. Graham Hill October 1, 2007 at 2:17 pm (992 comments) #

    Robert

    I am pleased that you feel so strongly about your discipline that you are wiling to invest your own time and money in proving its tangible worth to your clients. That shows the sort of determination to do the right thing that far too many real-politic driven C-suite executives just don’t have.

    On the other hand, don’t you think yout time would be better spent on looking at research into business rather than on looking at the business of research?

    Modern business is a team sport involving many different organisational functions, suppliers (like boutique market researchers), partners (like the larger ad agencies with market research arms) and even customers. No one group can achieve success by themselves without the complementary sweat and tears of all the others.

    Market research has a valued part to play in this success, but I believe it is utterly pointless to try and single out its contribution without tacitly recognising that the value of customer insight is precisely zero, until the business that commissioned the research decides to put the insights into front-line action. The front-line, the bit where we sell stuff to customers for money, is the only place where incremental value is created in any business.

    Let’s keep a sense of perspective. I am a great fan of good research. But it is only one of any number of inputs into today’s collaborative enterprise.

    Graham Hill
    Independent CRM Consultant
    Interim CRM Manager

  9. Bob Thompson October 1, 2007 at 2:33 pm (875 comments) #

    I didn’t realize that market researchers were sliding into irrelevance or wallowing in “disrespect.” I agree with Graham in concept that there’s a lot that goes into a successful business, so it’s difficult to justify any one change.

    Yet, justify we must. Managers still need to make a business case for their investments in CRM technology, new training, word-of-mouth marketing, or whatever. While they may not be able to tie that program alone to achieving a top level business goal, they still have to justify the investment somehow.

    Unfortunately, I’ve never had to develop the ROI on a market research endeavor, so I don’t know how such projects get funded. It would be great to hear from business people who have to fight for market research funds, and learn how they convinced the powers that be to invest. Did you use an ROI calculator, or some other approach?

    Bob Thompson, CustomerThink Corp.
    Blog: Unconventional Wisdom

  10. Amanda Steinhardt October 2, 2007 at 3:39 pm (1 comment) #

    I browsed to this thread precisely because I am experiencing problems getting my management to understand the value of market research. I instead need to come up with activities which will drive short term results to the bottom line.

    I agree that it can’t be distilled into a simple ROI because in order for the research to have impact it needs to be acted upon strategically across the channels. I’ve been in places where the research was there but the motivation to act on (what seemed like) the obvious wasn’t there.

    The problem seems to be in many instances of my experience that the players are all on different teams. And not the customer’s team! I have spent my career developing skills in customer insights but I need to work on gaining the political skills to campaign for the customer.

    Amanda Steinhardt
    CRM Manager
    The Body Shop

  11. Bob Kaden October 2, 2007 at 4:57 pm (22 comments) #

    Personally, I don’t see a disconnenct in using research to drive short term tactical decisions. Research can and should be used in this way..

    The question raised by Amanda seems more directly aimed at how to get research to impact longer term strategic goals. Her lament of gaining political skills to campaign for the customer is well stated. But, the problem I’ve found is that for a company to embrace a strong consumer voice, upper management must help.

    No level of political skill will help if management has the opinion that it’s smarter than the customer. Or that it doesn’t believe the consumer’s voice is being adequately represented by the research that is conducted. Assuming there is an open mind on these issues, such a problem might be addressed by more thoughtful research planning and by more effectively processing research results.

    A key is indeed getting the players on a team with one perspective. However that conjoling might take place(off premise retreats, one on one politicing, whatever) someone has to do it with the blessing from upper management.

    So, I’d start with questioning management on the kind of information they like to see regarding the customer. I’d follow with what steps they’d like research to take to be more believable in providing information that leads to actions. Finally, I’d ask for their support in creating a team to address these issues and find a great facilitator to develop a lead a research planning process.

    If management is unwilling to address the issues or simply doesn’t feel a problem exists, your answer would seem clear.

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