The pressure continues to grow for each phase of an organization’s operations to demonstrate how it contributes to the bottom line financials, and perhaps even in quantitative terms such as ROI.
Marketing has often gotten something of a pass on this, since the ROI of advertising or event sponsorship can be very hard to measure. The payback for marketing research is also not measured very easily, although managers often feel pressured to improve the ROI of their research expenditures. Marketing research is often viewed as an expense that reduces brand profitability, a necessary evil among marketing activities. In many companies (I particularly see this at the foreign offices of international companies) many brand managers think of marketing research as a required activity rather than a value-adding activity, and as a result research is often done perfunctorily, poorly, and ultimately viewed as a waste of money.
But it shouldn’t be that way. Money spent on marketing research should be seen as an investment in making better decisions. The return on this investment realized when the results of the research are used to avoid mistakes or to optimize choices among marketing activities. No clear decision? No research is justified. Marketing research expenditures should be considered investments in risk-reduction. When seen this way the return on marketing research can be increased and much better managed.
Let me propose a five step approach to improving your organization’s return on marketing research expenditures, although keep in mind the precise ROI might be difficult to quantify.
1. Always have a clear objective – and the objective should always be to improve decision-making. Marketing research is too expensive and such a limited resource that it must be portioned out carefully, therefore decisions with little risk or downside potential shouldn’t be researched. Only the big risky decisions need marketing research to help the decision makers see the consequences of various choices and to help determine the best course of action.
2. Specify exactly what the decision is (or the decisions are), which isn’t always clear. The decision maker and the marketing researcher (who should properly be acting as a consultant at this point) might have to deliberate until they can clarify exactly what has been decided, what is not part of the decision, and the risky decision on the table. Decisions can be obvious (go-no go decisions, such as price change) and less clear-cut (there is usually a standing commitment to fix problems highlighted in tracking studies).
3. Determine the actual value of the decision, for example, how much can the organization lose, or lose out on, by making the wrong choice – a critical step in deciding how much to spend on the research to follow. It doesn’t make sense to spend $50,000 on research to ensure the right choice is taken on a $20,000 decision. On the other hand, you don’t want a critical decision to be under-researched, which is commonly seen in advertising testing. For example, a financial services company recently ran an advertising campaign costing tens of millions of dollars in media expenses. Many people saw the ads and remembered them fondly when asked to describe them, however when asked what company sponsored the ads most people mentioned a competing firm – disaster for the sponsor. A test to determine whether an ad registers the correct brand name can be done for less than $30,000. This particular company may have run such a test (evidently not an effective one), but most companies do not. How can the advertising group not find some way to contribute $30K from their massive media budget to ensure that the rest of the expenditure is protected? That’s what I mean by treating marketing research as an investment. Align the amount spent on research with the consequences of the decision it supports.
4. Require the decision maker to identify the questions that need to be answered by the research to make the decision less risky. These are marketing/strategy questions that give the manager sufficient understanding of the “real world” situation that the decision can be made more comfortably. And often the number of questions can exceed the capabilities of the budget or time available for the research, so priorities have to be set. The decision maker has to decide, if we could only answer one of these questions, which question would that be and what is the next most critical question, etc. Finding actionable answers to these important questions then becomes the objective of the marketing research team.
5. Require the marketing research team to use the decision(s) and the questions to be answered as their guide in seeking data, analyzing the data, and presenting findings. By limiting the study to focus only on those need-to-know questions wasted effort and time will be eliminated. The research should result in an improved decision, because it answers the most critical questions. The final report will be an efficient description of the decision context that should help the manager take the proper actions, with nothing superfluous included, a good use of marketing research dollars.
As a member of the teaching staff at Burke Institute, Dr. Tony Zahorik enjoys traveling around the world sharing his extensive knowledge of marketing research methodology with a variety of industries. He has been acclaimed for his ability to teach technical subjects to both technically and non-technically oriented students.