The top types of market research considered to be of most use to large businesses over the next two years are branding and market assessment (considered very useful to 61% and 58% of marketers respectively). In spite of average revenues of $6 billion, only 20% of these firms have commissioned a research project with a third party over the past two years. Why aren’t American companies investing in the research that over half believe would be so valuable?
We’ve found part of the challenge is that a return on investment (ROI) on market research is hard to predict. All commercial organisations exist to make money and it is reasonable to question the value of an investment, for investments tend not to be authorized unless they can be validated by justifiable measurements. The value in market research, however, is in the actions that follow. From any research effort, there are typically a number of different actions that could be taken, and the good researcher will point the marketer in the right direction. Market research studies on pricing, customer loyalty, branding and segmentation regularly deliver a four-fold return on investment.
The Lenskold Group/Kneebone Marketing ROI and Measurements Study interviewed marketing practitioners around the globe and found that a quarter of marketers said their companies calculate ROI for at least some of their marketing campaigns. This was up a fifth on the previous year. In short, ROI has become a mantra for many companies, and they appear to be taking the measurement of marketing ROI increasingly seriously.
With this in mind, it is a market researcher’s job to convince businesses that they are failing to realize the impact market research can make and that measuring the ROI is possible.
The importance of market research in decision making
Market research should help businesses when there is a big decision to make. The output should always go beyond providing data – which some companies believe is all it does – and assist management in making informed and intelligent business decisions. Questions like ‘should we develop a new product?’ or ‘how effective is our advertising or promotion?’ arise from the need to address declining sales or make the promotional dollar work harder. In these cases, market research is both a compass (showing which way to go) and a guide (showing how to get there).
Every research project should have its own defined and explicit objective that states why the research is being carried out. The objective of the research should, of course, relate to the marketing decision which will have to be made, or the problem that needs a solution. What market researchers should emphasise is that if research is well planned, the outcome will also point to the decisions that need to be taken. In other words, market research can make a massive impact to the bottom line, making the investment in market research invaluable.
What affects the decision to commission market research?
Market research is used to test hypotheses and determine if and how an objective can be achieved. It can also be used as a control to see if the objectives are being realised. Herein lies one of the major problems for measuring the ROI of market research; it may come so early in the chain of events leading to a project launch that it is far removed from the end result, and in isolation it is hard to see its contribution. There’s no doubt that it plays an important role in the launch of successful products but it is sometimes difficult to separate its contribution from all the other component parts of the marketing process.
In advance of commissioning research, the sponsor will not unreasonably want to know the anticipated accuracy of the study. In some cases a high level of accuracy isn’t needed, for example, a company seeking to enter the Chinese market may simply need to know if the potential for their product or service exceeds a certain figure which would make entry viable.
In contrast, when the objective of an advertising research study is to measure the impact of a campaign on brand awareness by comparing before and after measures of awareness, the accuracy of the results must be sufficient to be useful. Accuracy levels need to be considered at the research design stage as they could affect the cost of the survey and therefore the notional return on investment (clearly an expensive research project requires a bigger ROI than a low-cost research project). Since accuracy may define or influence the cost of market research, it has to be a serious consideration in the ROI debate.
How can we measure ROI?
The more general the market research objective, the more difficult it is to achieve a ROI measurement. In possibly half the market research projects that are commissioned, it is likely to be difficult, if not impossible, to measure the ROI. For these projects though, a more subjective approach would be useful to justify the market research expenditure. For example, to the question ‘what is the risk to the business of taking a decision without market intelligence?’ the importance of the business decision can be ranked from 1-5, where 1 is low and 5 is high. If the answer to it is a score of 4 or 5, then market research could be justified.
Where is the measurement most feasible?
It is clear that the measurement of market research ROI is a valid concept, even though there are inherent difficulties in doing so. It is worth holding a post mortem after every research study is completed to judge the success of the project and whether it was financially justified. In other words, a straightforward satisfaction score on the research project may, in itself, be as good a measure as any.
*According to our recent survey of large North American businesses, conducted in the summer of 2014.
Julia Cupman is Vice President at B2B International