Marketing Research ROI: Investment Or Merely An Expense?

Marketing research has its own calculable ROI. Assessing brand image, employee satisfaction, or new product reception before launch can save a company thousands. Companies should arm themselves with "knowledge-driven" market research instead of taking risks by being "assumption-driven."

 

In this time of belt-tightening it is more than reasonable to pose the question: What is the return on investment for marketing research studies? First, we have to ask why companies conduct research to begin with:

• To test new product and service concepts/components/prototypes, new positionings for established brands and new communication campaigns
• To test distribution channels, target market segments, and other elements of a marketing plan
• To determine brand image
• To find out how customers feel about the products and services they are buying and the companies from whom they are buying them
• To find out how employees feel about their companies and managers
• To generate content for a publicity campaign
• Any other inquiry about how and why consumers or B-to-B buyers make purchase decisions

 

For each of these reasons there is a risk attendant with NOT conducting the research; a risk that may impact the marketing plan or the company's (or division's) entire business plan. In some cases, the risk has a specific dollar amount attached to it; in others, the risk is qualitative.

A company that is rolling out a new product or service, or modifying an existing product or service, generally has a budget for doing so. Suppose that budget is $10 million (including production, sales training, marketing materials, and advertising). The risk of launching this product/service with serious flaws in the product itself, the marketing, or advertising can have significant financial consequences for the company or division involved. Would it be worth $25,000 or even $50,000 (no more than 1/2 percent of the cost of product launch) to make sure you have it right?

According to the 80/20 rule, 20 percent of your customers account for 80 percent of your revenues. If half of those 20 percent were unhappy with your product or (more likely) their relationship with your company, the impact of losing even one in ten of those customers (1 percent of your best customers) could be severe. Would it be worth spending $15,000 or $20,000 (1 percent of sales if these customers account for $2 million in sales) to make sure your biggest customers do not leave?

In recent years, companies have begun to realize that their brands are financial assets, in and of themselves. Consumers invest the brands with which they are familiar with qualities that promote loyalty and repeat purchase (or recommendation). If a brand's image is slipping--either because of competitive pressures, negative press, or neglect--sales will begin to fall. Would it be worth spending upwards of $30,000 to assess a brand's image and/or test a repositioning (0.6 percent of sales for a brand worth $5 million a year) in order to keep the brand fresh and responsive to consumer needs?

Employee turnover can be expensive. In a service business, it can also undermine customer confidence. If you could find out how to improve employee satisfaction and decrease turnover, how much could you save in a year--$20,000? $100,000? More? It may be worth spending $10,000 or $20,000 to figure this out (depending on employee size).

It is an ongoing challenge to find new ways to publicize a company or brand, and to do it in a way that conveys the key messages you prefer. "Research for Ink" is an inexpensive way (anywhere from $6,000 to $20,000 depending on whether it is a consumer or B-to-B audience) to gain thousands (even tens of thousands) of dollars of publicity.

A case in point involves work I did with a company that is well known for its dated products; that is, calendars, appointment books, and the like. They were interested in entering the market for student planners/agendas. At the time, this was a burgeoning market, and it seemed like a logical line extension for the client. The research was conducted in three phases.

* First, we conducted a series of focus groups, some with students and some with teachers. In one case, we conducted a group among parents of high school students and we invited the teachers to sit behind the mirror and observe. Afterwards, we invited the teachers into the conference room and explored what they heard and how they processed this information.

* Then we conducted a series of approximately 30 one-on-ones with educators who were charged with purchasing student/planners for their schools, to learn about what they were looking for, what they thought the students would like, and more importantly, how they planned to use these books. In some cases, we spoke with building principals and sometimes the respondent was a teacher who had championed this program.

* The client had chosen a couple of schools as Beta Sites. We conducted a "snail mail" survey among students and teachers who had tried these new planners.

When all was said and done, we recommended that they proceed, but the planners would have to be customized for each school. That meant that instead of being able to print hundreds of thousands at a time, the client would have to do short runs of a few hundred at a time. When they compared these recommendations to their business model they decided not to move ahead with it; it didn't make economic sense. They realized they would have to purchase or lease different kinds of printing presses for these small runs. Even though they had spent over $75,000 on the research, they would have lost many times that had they gone ahead with a mass-produced product that did not sell.

Some managers may think of market research as "nice to have" but not essential. Instead, they should think about the risks being taken by being "assumption-driven" rather than "knowledge-driven."

 

Ann D. Middleman is a Principal at ADM Marketing & Research Consulting. Contact her at [email protected].