Here at Research & Marketing Strategies (RMS), a market research company in Syracuse, NY – we often hear that little to no market research is done by businesses for new product development or before a major marketing campaign is undertaken. Have you ever heard the phrase “any advertising is good advertising?” It seems like a mantra that is far too widely accepted, especially with small businesses. When businesses spend money on advertising, the CEO will most likely be satisfied if there is a measurable improvement from the campaign. In my last post, I wrote about the increasing importance of measuring the impact of your brand. What the CEO sometimes fails to realize is that if the company had spent some money upfront doing some market research, the ad campaign could have doubled, tripled, or even quadrupled their sales. The same concept can be transferred to higher education with regards to increasing enrollment at colleges, or even healthcare by increasing the number of new patients.
Fact is fact, you may choose against market research – in turn you may create a bad product, with the wrong messaging, advertise it using the wrong channels to the wrong people, but the product still sells. Occasionally, due to market demand, businesses may still make a profit out of a bad strategy model. It’s not optimal though. Try comparing that to sales from a good product, with effective messaging, advertising it using the correct channels to the right people. I am going to step out on a limb and say sales using this strategy model might be a bit better.
So let’s take a closer look at trying to analyze ROI for market research. ROI for market research is much like a page straight from your Psychology 101 book – comparing a 1) control group to a 2) test group. Your 1) control group or control process uses no market research throughout. Your 2) test group or test process is the one that uses market research. So the only way to truly apply a dollar value to market research ROI is by running two simultaneous experiments on the same product development process. Viewing the schematics of this makes you start to understand you almost need an alternate timeline (think Back to the Future II – other than the hoverboard, terrible movie). All aspects of the experiment would have to remain the same – including the people working on it. As you see, in reality there is no way to analyze the exact ROI of market research, but in the Bunker we have no limitations, and thus we’ve created an alternate timeline to take a closer look at a purely theoretical example.
In the example above, the process on the left is the 1) control group and the process on the right is the 2) test group. Although the cost for production modifications, advertising and market research combined is $65,000 more expensive in the second option, the net profit and overall ROI are higher. So the question is: would you as the CEO choose lower upfront costs and lower returns or slightly higher upfront costs and much greater returns? Of course, this is not a guarantee. Especially if you undertake a market research process in-house – this could result in faulty forecasts or biased outcomes. In simple terms, market research reduces the risk of introducing a bad product to the market, which results in a greater chance of success.
So it begs the question, why don’t more companies do market research beforehand? Many small business owners see market research as an expense/cost and not an investment. Although market research may just seem like an additional cost upfront in an already hard-pressed budget, it will pay for itself over and over again down the road.