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Why Is Market Research The First Area To Be Cut?

Why is there a perception that the research budget is fair game when times are difficult? Here are the main factors behind this attitude to market research.
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By Neal Cole

A few years ago I was working for a UK commercial bank and the Marketing department had been called together to meet the new Head of Marketing. As our new colleague was introduced to each area of marketing she acknowledged the value that they offer to the organisation. However, when she was introduced to the Market Research Team  we heard the fatal words “Oh, yes, Market Research, the first area to be cut when there is a downturn.”

Ironically within a matter of months we were hit by the financial crisis of 2008 and almost immediately my budget was drastically cut back. So, why is there a perception that the research budget is fair game when times are difficult? There are of course a number of inter-related reasons, but from my experience here are the main factors behind this attitude to market research.

Return on investment:

Senior managers understand numbers as they deal with them every day. To speak their language and gain trust it is important to provide figures on the value of research. Key here is stakeholder management to uncover all the potential benefits of decisions informed by research. But also follow-up on research by owning the action planning process, and agreeing how to calculate the value of research in monetary terms.

 

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This will also help in trying to prioritize research budget from a ROI perspective. But more importantly if we are seen to estimate the benefit of research in monetary terms the budget is less likely to be perceived as a cost center and instead it may be recognized as a source of revenue and cost saving ideas.

As managers are just as loss averse as the rest of us they don’t like to have to justify expenditure unless there is a measurable benefit.  Building trust by talking their language allow us to re-frame research in a more commercial sense and open up opportunities to discuss more strategic projects to address longer-term business goals.

Loss aversion can also be used to our benefit as research can help protect a brand by uncovering poor sales practices and training needs of customer facing staff though covert observational techniques. Further, for digital communications related research use A/B testing to measure any uplift in conversion and then calculate the loss of revenue if the old content has been retained.

Herd mentality:

When other companies are seen reducing costs by cutting back on research and development it is easy for a senior manager to use this as evidence to support their own plans to save money by cutting expenditure on research. This copycat behaviour is difficult to prevent as in times of uncertainty we like to follow what other people are doing as we assume they are doing it for a valid reason.

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This of course is not always wise and as in the case of stock market bubbles when people copy behavior blindly without assessing the risks it can end in disaster. The important strategy here is to identify and highlight those successful organisation that are not following the heard. Investigate their approach to research and their successes in the field of insights to demonstrate the value in having a longer time horizon.

Confirmation Bias:

People are always looking for information that will confirm their attitudes and opinions. The danger here is that managers often try to use insights from research to justify a decision they have already made. Rory Sutherland recently suggested that over 50% of market research may be commissioned as a kind of insurance against a decision going wrong. The manager can then blame the research if it proves a disaster.  I suspect this is probably not far off.

If the research is for “arse covering” as Rory puts it I try to steer the research towards a more useful area of insight. Review the problem from a wider frame of reference and identify other related questions that might be more valuable to answer. Then make a subtle suggestion to the manager by asking them if that had thought about asking this question instead. Explain how this new question would help their problem, but also how it might be more beneficial as a whole.

Also make sure you ask the commissioning manager what they think the research will discover to counter hindsight bias. You can then add this to the brief and create a research hypothesis to be tested.

Emotional attachment:

As human beings we are emotional rather than rational creatures and our decisions are heavily influenced by psychological goals, such as power and autonomy. We respond most positively to people who take a genuine interest in our lives and make us feel important.

 

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Make an effort to get to know your senior managers, find out what motivates them, from both a personal and business perspective. This will also help you identify their achievements so that you can give sincere complements to build a stronger relationship.

This should also allow you to find out about their perception of research so that you can consider how to counter any misconceptions. But the important behaviour is to listen and get them to tell you what their priorities are and you can then go back later with plans to target these needs.  As is often the case it’s not what we know, but who we know that matters.

Targets & Short-Termism: 

Understandingly there is a tendency among public companies to focus on hitting the next quarterly targets. This tends to result in an obsession with setting goals to help meet these targets. However, research from the Harvard Business School – “Goals gone wild” indicates that goals imposed on people by others (e.g. sales, quarterly returns, customer satisfaction scores etc), narrow our focus and limit our thinking which reduces our ability to come up with innovative solutions.

There is also plenty of evidence to suggest that goal setting can also result in unethical behavior. Tesco and Halifax Bank of Scotland (now part of Lloyds Banking Group)  in the UK and Enron in the US are prime examples of where lofty revenue and growth targets encouraged a race to meet them at any cost.

 

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Short-term thinking almost inevitably leads to less research and development.  Research can be used to help counteract the negative side-effects of goal setting and inform decision making in a way that helps broaden our horizons. You can employ loss aversion here to focus attention on the dangers of missing out on new emerging trends or disruptive technology.

You can also ensure that your focus reflects the needs of the business to achieve efficiencies and cost savings by proposing projects that assist this process. Behavioral economics for instance can be used to used in many areas, from call centers to production lines, to create new habits and improve customer decision making.

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11 Responses to “Why Is Market Research The First Area To Be Cut?”

  1. Michael Lowenstein says:

    April 5th, 2016 at 10:37 am

    These are great observations, and great counsel, for anyone in the customer experience research profession, including vendors. All research plans should be subjected to the “business outcome objective” acid test. In addition, metrics should be action-oriented on a granular level, reflecting the emotions and memories involved with customer experience.

  2. Martin Silcock says:

    April 5th, 2016 at 11:57 am

    Really enjoyed this Neal, especially the use of Behavioural ideas to understand management behaviour.

    I have found the simply building budgets attached to key stakeholder projects in zero-based activity cost approach also means you can protect budgets easier as management has to make decisions more responsibly. Cut MR budget and decide blind on your marketing…or delay projects into following year. You can have more grown-up conversations than simply cut the budget.

  3. Martin Silcock says:

    April 5th, 2016 at 11:59 am

    Really enjoyed this Neal, especially the use of Behavioural ideas to understand management behaviour.

    I have found simply building budgets attached to key stakeholder projects in zero-based activity cost approach also means you can protect budgets easier as management has to make decisions more responsibly because cutting MR budgets has consequences for making good decisions. You can have more grown-up conversations than simply “cut the budget”.

  4. Michael Lowenstein says:

    April 5th, 2016 at 2:43 pm

    Also wanted to state that the issues addressed by my latest CustomerThink blog – http://customerthink.com/are-popular-customer-experience-metrics-just-immature-or-do-they-have-bigger-challenges/ – are also discussed quite well in your post. Too much customer experience and communication effectiveness research is conducted without real, commercial objectives with findings and projections that can be expressed in monetary terms. That’s both a complacency with regard to methods and metrics, and a lack of discipline

  5. Chris Robinson says:

    April 6th, 2016 at 4:12 am

    The article misses the most obvious reason why MR is one of the first items cut in downturns – basically it is discretionary cost that management feel can be replaced temporarily by less formal sources of information such as sales staff, front line customer service and just observation. There isn’t any science in this other than techniques for ingratiating oneself or making what one does seem like it is incredibly valuable. The reality is it rarely is. I am reminded of something said by one of my old bosses. Market research is like the lamp post that a drunk leans up against – more for support than illumination! We take ourselves too seriously as an industry and a good downturn is often needed to bring back reality to the industry.

  6. Kevin Gray says:

    April 6th, 2016 at 5:01 am

    This is an important issue that is often ignored in the blogosphere, and thank you for posting this. Marketing and MR do not command a great deal of respect, even in many MNCs, for a range of reasons. Moreover, trad MR is increasingly under threat from other data sources, new kinds of suppliers and clientside analytics teams that do not report to marketing. However, in many organizations, research and analytics of any sort does not yet play a significant role in decision-making, so there is room for MR to assert itself. We are more than computer programmers and accountants.

  7. Ellen Woods says:

    April 6th, 2016 at 8:48 am

    Thanks for reminding us of how others see the industry. Market research, as Neal stated, is largely viewed as a cost center and often the information takes so long to obtain that the need is often moot but more importantly, it often only provides direction not action.

    We have strayed a long way from the days where insights were considered results and often we attempt to answer questions by asking more questions. We do take ourselves too seriously and we rely too much on technique and too little on application.

    Heck, we even have created new names for what we do, Insights Management, Insights Development etc. but those imply information management not results. Just as all areas of business have had to adjust to a faster pace of information and quicker decisions, it’s past time we let go of techniques that validate the method but provide slower and less effective results. It astounds me that we haven’t jumped on new areas of information and incorporated them into an overall insights package that provides a more quicker and more succinct view of the more quantitative aspects of research. With that, the focus can become more detailed and we can deliver insights on smaller and more critical aspects of a business case.

    What marketing manager or CFO would not like to know MORE about new products or new markets? We don’t need to ask questions when people are willing to give answers and letting them frame the answers provides an amazing amount of insight. Research used to be full of people who were genuinely interested in problem solving, not new ways to peel a potato. The real problem isn’t just financial, it’s in our heads. Being excited about what you do leads to many discoveries.

  8. Horst Feldhaeuser says:

    April 6th, 2016 at 4:03 pm

    I think that Ellen makes a good point. Overall, we need to become more commercially focused. We need to better understand where MR fits with everything else in our clients business. This makes us business people – not researchers. We trade in knowledge and information to help our clients businesses make better decisions. Companies DO NOT CARE where they get their insights from. Spend is now discretionary across function and activity, and yes we are competing with a number of different alternatives. In one recent example from an FMCG client, they would need to sell 10s of thousands of new products to break even on a $35k research project. why not just trial the new product and see how it goes…. Our industry becomes more and more complex, but we as naturally curious people should be well placed for this.

  9. Richard Smith says:

    April 13th, 2016 at 12:05 pm

    The other point that springs to mind is how much better Management Consultancies are at justifying their services to business leaders (often at extreme multiples of what an MR agency would charge). A few years ago, we were discussing last year’s report with a financial services client. At the end of the meeting they admitted that the recommendations were pretty much identical to those they had just paid a consultancy twenty times more to deliver.

    A lot of senior managers are prepared to believe a nicely packaged (and very expensive) report from a management consultancy, but not prepared to commit to action based on research findings. It’s partly an image problem and partly a packaging problem. Maybe we need to invest more in design and in the kind of soft skills training that consultancies and ad agencies use to ensure a seat at the top table.

  10. Victor Crain says:

    April 13th, 2016 at 12:22 pm

    This is a good article, but it ignores something important that I’ve see (and an error that I;ve made in the past): spending too much time on research project management. We can categorize inhouse research responsibilities as falling into two categories: (1) execution, and (2) utiliation (also called implementation or socialization). The first category is obvious, and something inhouse research staff used to delegate to vendors in the old days so they could focus on the second. Now, with the tidal wave of DIY tools, researchers are doing the first and neglecting the second, to their peril.

    What is utilization? It’s spending time with managers to make sure they think about market information in making key planning decisions — what they already have and what they need to get. It’s becoming the trusted advisor. That won’t happen if your head is buried in a computer screen all of the time. It’s learning the business of each division of the company so that you can make intelligent comments, and learning the quirks of each key manager so that you can position what you say in a manner to which he or she will be receptive.

    If you don’t do that, your budget, your department and your job are all “walking dead.” If you do that well, you won’t have to worry about questions about return in investment — but may have to worry about training your replacement as you get promoted.

  11. jeffrey hunter says:

    April 15th, 2016 at 8:41 pm

    I like this topic a lot, and my opinions are closer to Ellen’s. In general, MR doesn’t actually solve many problems, and the problems that we do solve are small. I spent twenty-five plus years at high levels in the insights department at a major food manufacturer. It took me fifteen years to figure out that there are two kinds of information; (1) the information needed to understand and address the real opportunities and challenges that the business faces, and (2) the information that MR provides, which is a disconcertingly small subset of that. Small surprise that the BCG study of a few years ago found the majority of executive wings disappointed with their MR department, and small surprise that MR is the first to get cut. I don’t see the situation getting better in the near term because, as Ellen notes, we focus too much on technique and not on results. This is clearly manifest in the blogosphere and in our conferences. An incredible majority are focused on shiny new toys. Case studies with result, and good empirical research, were once the pinnacle – at least for clients – but are rarely seen anymore. A recent flyer for a conference is a perfect example – “discover the coolest market research and technologies”. I like cool – but cool and useful to the business would be so much better.

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