Real Research Versus the “Microwave Kind”

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There are two most common reasons that marketing research doesn’t play a more prominent role in companies are TIME and MONEY.

For the most part, small and mid-size companies don’t budget the time necessary to insure research is part of their decision making process. If they do any research it’s often the “Microwave Kind.” The quick and dirty, often after the fact, when things are going bad, when you need the answers yesterday, when nothing you’re doing seems to work kind.

For marketing research to be “real research”, it should be conducted early on. Before major decisions are made in regard marketing and product planning. Real research takes a more time than The Microwave Kind…usually 8 to 12 weeks more.

If you’re not giving yourself the luxury of a little time, if you want to bet your bottom line for the next year or so on the heat ’em up quick kind of research, if your concern is with thinking fast rather than thinking smart, Microwave research will do the trick.

The money part is a biggy. It’s hard to spend money on research when there is no clear guarantee of a profitable payback. Interesting isn’t it that spending money to support short-term promotions, circulating additional catalogs or flyers, running a bunch of banner ads, adding to the sales force or tossing a new product or service into the market seems so easy to justify? Even when faced with an iffy payback.

How do you measure the value of thinking smart? How do you equate spending money on research when the goal is only to improve you chances of success? The answers relate to the size of your company, its growth in the previous few years and your willingness to bet the ranch on your entrepreneurial instincts.

For companies above $4,000,000 in sales (or well-funded start ups) allocating 1% of that on good research should be a rule of thumb to smarter thinking. If your growth rate is strong, allocate up to 2% on understanding why you are doing as well as you are and do more of it. If, though, you feel your entrepreneurial instincts can predict with certainly what your customers and prospects need and want, save your research dollars and buy yourself a sports car.

Microwave research or real research? Time and money. They’ve always been the issues when it comes to conducting effective marketing research. They always will be!

Bob Kaden
The Kaden Co.
Bob Kaden is the author of Guerrilla Marketing Research and president of The Kaden Company, a marketing research consultancy that works with clients in planning and applying research to make more money. He is a frequent lecturer and trainer in the areas of creativity and marketing research processes.

7 COMMENTS

  1. Bob

    A provocative post, especially the 1-2% of sales recommendation for spending on market research. And your challenge to the effectiveness of various marketing mix tools. Your post leads to two obvious questions.

    Where is the financial business case for the slow cooker market research you suggest? You can’t expect marketers to invest in more market research without a rock-solid financial business case. Not in these cash strapped times.

    How do you quantitatively prove the payback on market research? It is easy to measure the payback of the marketing mix tools you mentioned. And to change them if they are not working.

    Come on Bob. Show us the financial strength of your convictions.

    Graham Hill
    Independent CRM Consultant
    Interim CRM Manager

  2. Well, Graham…therein lies the crux of the problem. How do you quantitatively prove the payback on marketing research is like asking how much more you would have made if you went with decision A rather than decision B? Or how much less would you have lost if you went with decision C rather than decision D?

    There are no financial models that I know of that will develop a “rock-solid” financial case for research. Frankly, research hasn’t reached the point of respect where it would be given that kind of credit anyway.

    While I have written about setting up test markets or test/control situations where research driven decision making is pitted against decision making based on best assumptions, I know of no specific cases. Honestly, I wish someone somewhere would help me on this subject.

    What I do know is that bad research of the “Microwave” kind is worse than no research at all and that I’ve seen many times–and is a good subject for an article or blog.

    What I also know is that in cash strapped times the premium on making smarter decisions is more important than ever. Investing in something only to find out it isn’t working and then changing it is the M.O. that we researchers are constantly fighting. And it is a very costly way to do business.

    To me, it’s far better to invest in an insurance policy with the pay-off of doing it right the first time. The means taking the time and spending the money on a well conducted piece of research.

    Bob Kaden

  3. Bob

    Let’s look a little deeper. Take an index of top-performing companies like the FTSE 100. Take a good company with solid growth over the last year like Vodafone Group. Vodafone had revenues of approximately US$60Billion in 2007.

    Your suggestion of 2% of sales (revenues) to be spent on market research is a staggering US$1.2Billion! At only 1% it’s still US$600million. You expect Vodafone to spent even a fraction of that with out a granite-hard business case? I would like to be a fly on the wall when you pitch that to Frank RÖvekamp, Vodafone’s Global CMO.

    Graham Hill
    Independent CRM Consultant
    Interim CRM Manager

  4. Graham:

    My 1% to 2% reference was meant for small and mid-sized companies which I mentioned in the blog and which I think addresses the size of most customerthink.com companies. The $4,000,0000 sales figure was a meant as a minimum and was to suggest that $40,000 to $80,000 was necessary to conduct one or more valid research studies. I clearly should have capped that reference…and will do so here.

    In my experience, at sales level of $50,000,000 spending 1% or $500,0000 a year on research has proved to be a workable number and appropriate to cover not only attitude research issues but database and other “secondary” types of information issues that companies that size need to understand their position in the market. This is particularly true for companies enjoying a good rate of growth.

    As sales levels grow higher the percentage needed to support an effective research budget will certainly decrease. At half a billion in sales for example, .5% would generate $2,500,0000 for marketing research spending and would be a figure that would strongly address most any strategic, tactical or database research issues a company that size might face.

    Companies with sales in the billions certainly need not allocate 1% of sales to support an adequate research function. If, though, you look deeply at the research budgets of giants such as P & G, Kraft and General Foods, you’d see they spend many hundreds of millions of dollars researching their brands and their research budgets (given how they might define their research function) can indeed reach 1% of sales.

    I was trying to define a minimum research figure for customerthink.com size companies, not for Vodaphone size companies. Thank you for raising a valid concern and allowing me to clarify here.

    Bob

    P.S. If you get me an audience with Frank RÖvekamp, Vodafone’s Global CMO to pitch research, you can certainly be a fly on wall. Although it would take me time to understand the company and it’s goals, you’d be amazed how compelling and rational a $600 million research expenditure might be for a $60 billion company.

  5. Bob

    Is there a real growth relationship between revenues and the need for market research? Or does it logically rise from zero to a maximum, beyond which the incremental benefit from yet more market research don’t cover its cost? Just because a company grows bigger doesn’t automatically mean that it needs to do more market research.

    As someone who commissions market research on behalf of clients, I only do so to answer particular questions (microwave) and only if I can’t find out from other sources first, or by fast experimentation in the market. Market research is not the same as understanding how markets work, or how customers will behave. And the bigger my clients have grown, the more they have built in market monitoring mechanisms to automatically find out the answers to key questions without having to do additional market research.

    In my experience, market researchers have consistently over-promised on insights and under-delivered on business understanding of what those insights might mean.

    Graham Hill
    Independent CRM Consultant
    Interim CRM Manager

  6. Not only market researchers, but also consultants, as Larry Bossidy and Ram Charan demonstrate in ExecutionM.

    Daryl Choy, the founder of Touchpoint eXperience Management, helps firms make a difference at every touchpoint. Choy can be reached at wisdomboom.blogspot.com.

  7. Graham:

    Thank you for your involvment on this subject.

    As it is a more compelling issue to me, I will address your last point first.

    Researchers, I feel, consistently under-promise and under-deliver on insights because they don’t, first, develop action-oriented research objectives and, secondly, properly process research results. What you characterize as over-promising comes from the notion that just because a study is commissioned, the researcher will assuredly deliver insightful results. What often happens is that the researcher alone tries to anticipate what their company will find insightful and then goes about producing data in a vacuum.

    Insightful research is not the perview on the researcher alone. Users of research are often so divorced from research planning that they fail to adequately consider the kinds of information that will provide action-oriented information. The problem here lies in the way researchers involve (or don’t involve) users in the planning process. Simply put, action-oriented research objectives will lead to insightful findings and that means finding better approaches to planning research.

    Secondly, the researcher’s responsbility for their product shouldn’t end when the report is issued. If data is to be used insightfully, the manner in which findings are processed needs to be overhauled. There are any number approaches a strong researcher can follow to “work” their data. Still, it all comes back to involving users in developing actionable objectives and then processing the data and the implied actions with them and in the right format for the company.

    It is the researcher’s fault that they don’t (and often can’t) insist on more creative ways to plan their studies and process their findings. When this happens researchers will not only over-promise they will over-deliver.

    In regard to your question on research budgeting, there probably is a point at which increasing the research budget will not produce incremental benefits. But that is more a question for each company to ponder and is largely dependent (again) on the way research is creatively (or not creatively) used in the company.

    Bigger companies with layers of marketing management have a tendency to use research more because they are not only trying do the right thing but have more issues to assess. Not to mention the fact that they are often focused on covering their decisions and/or their preconceived notions. At what point this generates excessive research spending is not a question I can answer.

    Finally, I strongly concur with your point of first trying the find information from secondary sources before spending on primary research. If information already exists that addresses a particular question and provides clear direction, great. If not, then, the risk/reward benefit of allocating funds for primary research becomes the issue.

    Bob

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