A while ago I wrote a blog about the price of market research. A reaction to that post got me thinking. I realized that it’s much more important to understand what value market research delivers instead of minimizing its costs. In other words, what do you miss out on when you don’t listen to your target group at all? And is this value quantifiable, so that you can make a business case for market research? And is the fact that the benefits of market research are difficult to quantify a reason that it is difficult to secure budget for good market research, unless it’s really necessary?
Relevant questions for each market researcher and marketeer. Indeed, the main thing for an organization is not what something costs. It’s the value it delivers. What value has listening closely to your target group? Deep understanding of (potential) customers is a crucial condition for competing in an ever faster economy. The costs for market research are dwarfed by the benefits of constantly being in touch with your target audience!
Though this may be true, making the business case for insights is tough. There is no universal business case and the benefits are usually rather intangible. The (potential) benefits depend on the need which market research is fulfilling. And apart from that, try quantifying it… This is my attempt.
Market research as sales driver
Can market research lead to an increase in sales? Yes, definitely. The discipline of ‘Data Driven Marketing’ is focusing on reaching the right target audience, fact-based, at the right moment, with the right message or proposition. If these elements add up, sales increase. In determining what is the right target audience, message and moment, deep insight in the target audience is needed. By determining very precisely what the growth potential is when message, target group moment are aligned, the added value of market research can be estimated.
Particularly in online sales it is possible to measure the added value very exactly. Small changes in websites can have a huge effect on conversion. This can be measured precisely with a/b-tests. It’s in the identification of the possible improvements where market research proves what it is worth.
Market research as insurance policy
With the right insights, it’s possible to take the right decisions. Or, the other way around, avoid that wrong decisions are taken. Launching a new product or campaign means taking chances. In the light of these huge risks, it seems logical to reserve part of the marketing budget for coverage against these risks. The business case: estimate the cost of failure. And make an assumption about the chances of failure. Then make an assumption about the amount by which good market research can decrease the chance of failure.
Obviously no market research can completely eliminate uncertainty. But it can indeed decrease risks.
Market research as catalyst for savings
Can market research help to spend marketing budget more efficiently? Yes, definitely. Solid research is able to determine in hindsight if budget was well spend or not, but also beforehand. By calculating what the waste in marketing is, it is possible to determine what the added value of market research is in decreasing this waste. Market research can for instance help to make substantiated decisions when eliminating products and service that the target audience no longer wants.
Market research as part of the annual report
A lot of research is done, simply to provide certain KPI’s. Think of brand trackers, NPS measurements, etc.. Boards need this information to steer their organization. Although, ‘to steer’ suggests that this information is used beforehand, to determine direction. In reality, most of this information is used afterwards: to determine whether or not decisions have had the desired impact. This way, the people responsible for these decisions can be held accountable. The question we can ask is, how much is it worth to have this information available? To answer this question, we can take a look at the amount spend on bookkeepers and accountants and compare this to the amount of money spend on market research for this purpose. Don’t get me wrong, I am not saying we should spend as much on market research as on bookkeepers, but this comparison does provide some sort of benchmark to determine the value of providing the required KPI’s.
Insight as source of inspiration
This purpose is perhaps the hardest to quantify. But at the same time the most valuable use for market research. Deep understanding of the world and minds of your target group is needed to come up with innovations and campaigns that touch their hearts (and by doing so, are more successful). Innovation consultants and advertising agencies know this and take these studies in their own hands. Is it possible to put a monetary value on inspiration? Difficult, but let it be clear that it is a necessary condition for marketing success.
Build your business case
Do you want to secure budget for market research? Do you want to be more successful in selling market research projects? Money talks. A credible and realistic business case can move mountains. The simple formula:
- What investment is needed?
- What is the result, what do we achieve? Make sure there is a connection with the more strategic company goals.
- What are the risks?
Important starting point for a business case is the counterfactual scenario. In the case of market research: what happens if you don’t understand your target group at all? What would happen? Would you miss upcoming competitors? Will your competitors find new solutions for possible frictions that users experience that you have missed out on? Do you spend marketing budget without having any idea about the effectiveness and risks? And what would be the possible result of that?
Next try to quantify the possible benefits. Take one or more of the purposes of market research and put a price tag on it. Make clear what assumptions are beneath it and what margins of errors you have used to arrive at to this price.
When making proposals it is very important to figure out what purpose the client has in mind. What is driving the organization? How does this particular piece of market research contribute to the organization’s goals? This knowledge can be put to use when comparing the price of the research to the value it will deliver.
Business case = added value
Making a business case for market research has everything to do with proving added value. And this is something that we, as market researchers, have not been very good at traditionally. Perhaps under the naive assumption that the value of deep understanding of the market is something that speaks for itself. Yet it is a very good idea to think about this once in a while. By continuously realizing what the contribution to a company’s goals is, you can make sure that this contribution is maximized.
For more information and launch dates, see Whatsthequestion.online.