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Should Research Agencies be Paid for the Value of Their Insights?

An article in the October 2011 issue of Research Live ("The Value of Research" by Tim Phillips - it didn't appear to be in their online edition, but there is an alternate take here) on the topic of Agency remuneration prompted me to share my thoughts as a client-side researcher on the subject of ROI and market research.
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An article in the October 2011 issue of Research Live (“The Value of Research” by Tim Phillips –  it didn’t appear to be in their online edition, but there is an alternate take here) on the topic of Agency remuneration prompted me to share my thoughts as a client-side researcher on the subject of ROI and market research.

The article suggests that remuneration for performance is an urgent topic (if in a somewhat sensationalist/ melodramatic manner, not to say one laced with tired jargon such as “time is running out…” “perfect storm…”) Agencies, so the gist, can look forward to tough evaluative times.

It’s an article where none of the really big players such as Ipsos, TNS, Gfk, Nielsen (to name a few) are mentioned at all, nor are the views of the more hip boutiques represented. So there is a sense of a lot of people either not willing to talk, or hadn’t been asked for their views.

It’s an important topic, though, as the value perception goes to the heart of how much Senior Management is prepared to invest of their total budget to Insights. We compete for share of wallet.

Here’s a Client’s personal view on the question of whether Agencies should be compensated according to the impact of their insights – I repeat, purely my personal views:

  • Agencies that deliver powerful insights are worth their weight in gold.
  • This will invariably lead to excellent client-agency relations, repeat purchase, preferred supplier status – any number of things that will lead to enhanced revenue and possibly increased margins for suppliers.
  • Individuals within Agencies tend to be the source of great insights. A minor point but: should we Clients reward individuals – or their Agencies? And how would this work in practice?
  • Measuring the impact, let alone the value, of a particular insight is extremely difficult, when it’s just one input into a business decision – competitive activity, trade partner shifts, distribution changes, pricing movements…there is a whole raft of other variables that can and do impact market position and sales/ share growth.
  • How do you share the value of a decision that leads to cost avoidance? Money not spent may have been technically saved, but there is no incremental revenue factor and no additional money in the pot.
  • Agencies, as Kathryn Korostoff points – http://bit.ly/90BJpD – don’t have control over implementation.
  • Value perceptions are critical, especially amongst those who control budgets – Top Management. Concise, timely and regular snap-shot recommendations from the Insights Department is one way of upping the value perception stakes.
  • Benchmarking expenditure on Insights as a percentage of total sales is a good way of establishing how much money a given company in a given category should spend on CI

Is the debate over ROI for Research a productive one? I wonder. Maybe a more interesting question is to ask what margins Market Research Agencies deliver their owners in comparison to other types of Marketing Services industries, including Communication Agencies be it PR, WOM, Social Media or traditional advertising media.

Looking at the comparative margins would be interesting from a value perceptual perspective – as no doubt the likes of Martin Sorrell did a while back when he diversified WPP in the early days into Marketing Services, including research.

Another interesting and perhaps subsequent perspective would be to look at industries that have changed radically due to the arrival of new technologies or disruptive business models, and draw analogies for our own space. The airlines industry in Europe has seen the likes of easyjet, Ryanair significantly erode the share of traditional competitors due to a better grasp of what is valued by a vast swathe of customers. Technology is another interesting one – lets say mobile phones. Again, shifts in value drivers have lead to huge changes in the industry landscape.

From a client perspective, the drivers of the moment in research remain for me: speed (often research is regarded as too slow), cost/quality balance (some areas of research are regarded as expensive by many marketing folk for what they deliver), authenticity (we’re making huge strides here with derived, observational/ethnographic and neuro-science related techniques) and impact (responding pertinently to the “So What?” question). The list isn’t exhaustive.

My prediction for what it’s worth – Insights in whatever form or shape, however delivered, will remain extremely value for the foreseeable future, and market forces will answer the value question for us.

Curious, as ever, as to others’ views.

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11 Responses to “Should Research Agencies be Paid for the Value of Their Insights?”

  1. Michael Fruhling says:

    October 25th, 2011 at 9:34 am

    Hi Edward: Thoughtful post. Like you, I think it may be a challenge to manage rewarding of insights,, but that doesn’t mean that it couldn’t be done. In my field of technology scouting, I am incentivized for finds that my clients adopt for serious consideration. The definition of success in these instances is clear and unambiguous. Perhaps this type of discipline could be applied in the customer research arena.

    Best regards,

    Michael

  2. Edward04 says:

    October 25th, 2011 at 12:58 pm

    @Michael – thanks for sharing and I totally see how your activity could be quantified and related to “success”. It’s a model that to me seems akin to leads generation – the process of tracking and tracing is eminently transparent and measurable. In many reserach areas, it’s less linear, arguably more complex with many more inputs, many of which are not easily accessible to an external Research Agency, and in a context that often changes. My feeling is that over a period of time, it becomes clear which suppliers “deliver” in delivering cogent insights that shape a strategy or business issue, but not necessarily quantifably so. Defining and allocating rewards is to me equally complex for Research. So whilst I agree, in theory it may not be impossible, the question is maybe posed in too narrow a context. Maybe we should simply say that good Agencies that deliver consistently should be rewarded – with repeat business, preferred supplier status, and hopefully due to relationships that are grooved, for Agencies the “account” has lower costs attached.

  3. Tom Logue says:

    October 26th, 2011 at 10:14 am

    It’s always easy to argue against a “pay for performance” approach with all the other variables that impact the value of those insights. A few weeks ago I read a quote that drove that home for me: “What’s the ROI of a piano? To me, pretty low. To Elton John, pretty high.”

    The truth is, research adds value through the decisions it supports, and those decisions typically aren’t made by researchers. Nor should they be. And often the value of research isn’t in a new “aha” moment, it’s in the confirmation or description of the status quo. So rewarding insights is dangerous territory.

    I’m with Edward04 above… the rewards of being a good research supplier are repeat business and longstanding client relationships.

  4. Sheila Reilly says:

    October 26th, 2011 at 10:36 am

    This question incites a visceral, emotional response from this supplier of qualitative research, at least initially.

    I have found in recent years that clients appear not to WANT my insights, the benefit of my experience over two decades of designing/conducting/analyzing research.

    Yet, I find that staffs are shrinking on the client side, and the survivors are asked to do more, with less.

    Why, then, would they shun any assistance from research partners in a position to help? I can come up with some hypotheses, but I have nothing concrete.

    Do they not have the funding to engage the “value-added” supplier of research services? Are those suppliers themselves strapped to meet ever-increasing revenue goals, so that they cannot give the time and attention their clients deserve? Is the model of delivering services by the suppliers getting in the way … how many of them use the “sell/do” model? Is there enough continuity in the conduct of the research, in the process of serving the client relationship across multiple engagements, to allow for insights to happen?

    I don’t know. It’s a very provocative question and one about which I look forward to reading more.

  5. Saul Dobney says:

    October 27th, 2011 at 4:54 am

    What does the client pay when the research trounces the client’s pet project (no-go decisions)?

    How much of the value is not the insight but the implementation – how the business uses it, who uses it and how much money is invested to make the project happen?

  6. Ian Straus says:

    November 2nd, 2011 at 9:59 am

    “Should” is one of the most ambiguous words in the English language. “Should” asserts both moral and utilitarian elements, without specifying which the speaker means. Many people think the word absolves them from providing reasons why something “should” be. I personally believe that it is dangerous in pricing.

    I recently listed ten different rartionales for “should” in relation to pricing our own (public transportation) services, along with counter-arguments for each. I will just provide the headings here:

    I. Revelation
    II. The status quo
    III. Childhood
    IV. Welfare service
    V. Maximize [sales]
    VI. Pay the whole cost
    VII. Pay industry average
    VIII. Alternative cost
    IX. marginasl cost
    X. Value of tit enables

    In conclusion, each of these is subject to counter-arguments including reduction to absurdity.

  7. Anne Miner says:

    November 2nd, 2011 at 10:19 am

    Interesting topic and one that has long been debated. Saul’s comment brings home one of the key challenges – how do you compensate for performance when the research says a “no go” decision is the best one? and others have highlighted the issue of researchers having no control over the implementation.

    Sheila’s comments struck home with me as well. We have segmented our clients into:

    a) those who want and readily pay for our experience, expertise and insights – who engage us in the on-going process of customer care and retention, and

    b) those who want to be provided with the numbers and left alone to do their own analysis and decision making.

    The difference between the two segments appears to be related to the degree of maturity of the organization – segment a is more likely to believe that expertise is valuable (e.g., worth its weight in gold to quote Edward above) – this segment is comprised of more mature, more sophisticated organizations who are truly customer focused and appreciate the insights the researcher can provide. Segment b appears to us to be less mature, more enamored of technology, more data driven and less customer focused.

  8. Greg Timpany says:

    November 2nd, 2011 at 11:32 am

    Edward:

    You raise several good points especially the value of insight as a single input into a decision calculus. It is difficult at best to isolate and put an ROI value on all efforts. The question I ponder, is how long can businesses go with their gut feelings, when the market is moving toward data-driven decisions?

  9. Ron Sellers says:

    November 2nd, 2011 at 1:21 pm

    As a number of people here have noted, there’s just no practical way to compensate based on the value of the insights. Who determines the value? What happens when the insights are great and the client chooses to ignore them? What happens when the primary role of the insights was to confirm what the client suspected, allowing them to move forward in confidence? What’s the “value” then?

    Like many things in this world, the theory is intriguing, but then reality sets in and shoots it all to heck.

  10. Horst Feldhaeuser says:

    November 2nd, 2011 at 6:28 pm

    Agree with much that is mentioned below. Nevertheless as a researcher we really do want to add insight to our client’s business, after all this is what we enjoy doing (not delivering data or numbers). To get the most out of your research provider though we know that working in a colloborative way is most successful. This includes sharing your strategic vision with your providers, bringing all agencies and client insight team together on a regular basis, be open about what you want to do and why, be open to and accept input from your agencies etc. Unfortunately, not many clients work like this. Most are still only interested in data/numbers, and then wonder why they don’t get insights. So coming back to rewarding agencies for insights delivery – our main reward is going to be part of the total strategic team, incuding client and all other agencies. And yes, repeat business and a close relationship are a natural outcome of this.

  11. Edward04 says:

    November 3rd, 2011 at 1:53 pm

    Many great comments. I will just pick up on @Horst’s sentiment that not many clients actually work collaboratively enough with their Agency suppliers, that most are still only interested in data/numbers. Wonder what others feel about this? If it’s true, maybe it’s MR clients who need to start listening more to their Agencies to ensure that a value equation is possible

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