Market research charges online

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With the recession behind them, companies are funding market research again. Spending on market research is expected to total $7.2 billion for 2004, up about 7.5% from 2003, said Lawrence Gold, editor and publisher of market research newsletter "Inside Research," which tracks market research spending.

The final data for 2004 were still being compiled at press time.

"The industry was flat for a few years," Gold said. In 2003, market research spending was up only 3% to 4% over 2002; in 2002, spending was down from the previous year.

"Now the economy is going full force, and clients have opened up their purses," Gold said. "There is a pent-up demand for research, particularly as marketers introduce new products and services."

The biggest increases in market research were in online research, which grew about 20% in 2004, and customer satisfaction research, which grew roughly 14%, Gold said.

According to a survey by Ciao, a global market research company, 87% of market research clients in Europe and North America said they would increase their use of online research in the first six months of 2005.

The survey, called "Ciao Online Research Barometer," found that 36% of market research clients said they expected online research to "greatly increase."

In terms of market segments, 80% of respondents said they had used online market research for consumer goods research and 40% had used online for b-to-b market research.


Timothy Eades, senior VP-marketing at Sana Security, a computer security software company based in San Mateo, Calif., said the company uses both internal and external market research. (For a list of third-party research companies, see p. 29.)

"We use what we call rear-view mirror research, from companies like IDC and Gartner, to track market size and market share," Eades said. "We also use going-forward research, from companies like Frost & Sullivan, for market forecasting."

But Eades added: "In a rapidly developing market, the first type of research borders on irrelevant, so we don't spend that much money on that, and the second type of research adds value, but doesn't get deep enough to make true product decisions."

To supplement off-the-shelf research, Sana conducts its own market research with face-to-face interviews with customers, channel partners and university researchers.

Like most marketers, Eades uses different types of market research depending on the life cycle of his product.

Prior to a product launch, Sana uses market forecast research combined with primary research from customers and analysts. When the product is in beta testing, the company switches to customer research.

Following the commercial launch of the product, Sana uses online surveys to monitor buyer reaction, as well as message positioning, ad awareness and intent to purchase.

"You can't forget about end-of-life research," Eades said. "If a product goes away, you have to transition the customers away from the product, and use research to move them [to new products]."

Despite the return to spending, few companies measure the effectiveness or ROI of their market research efforts, according to a survey by A. Dawn Lesh International, a New York-based market research consultancy.

According to its "Measuring Returns on Research" report released last fall, only 10% to 15% of companies measure market research ROI. Of those companies that do measure market research performance, several types of measurement models exist.

Satisfaction with market research projects is based on surveys with market research clients measuring variables such as overall client satisfaction with the project, responsiveness to client needs and requests, technical skills and quality of work.

The second type of measurement is negotiated value, in which the client and market researcher agree on the monetary value of the research. For research on new products, markets or market segments, the value of the research is based on the expected value of each promising new idea, the report found.

For advertising research, the value is often based on some portion of the advertising budget.

A. Dawn Lesh International also identified two different models for ROI. The first, called ROI Lite, is equal to the dollar value of the decision times the increased confidence of making the right decision (estimated by the client), divided by the cost of the research. A more advanced formula, called ROI Complete, adds the likelihood of taking action into the formula.

A few factors are pushing the need for companies to measure market research ROI, said Dawn Lesh, founder and president of A. Dawn Lesh International. "Six Sigma [a performance measurement model] has been an influence, and the increased need to have some kind of measure on the return on investment of marketing," Lesh said. "There is an increased need for accountability and some kind of way to measure ROI."

Another challenge is the use of outdated market research techniques, said Don Schultz, professor emeritus-in-service of integrated marketing communications at Northwestern University.

"The real problem is that we have fallen in love with our tools and techniques, and those tools and techniques probably aren't valid anymore," Schultz said, pointing to sample-based surveys as a prime example.

"Almost every market research technique involves going out and talking to customers, but response rates are going down like a rock," Schultz said. "You can build a very sophisticated sampling technique, but if you can't get anyone to respond, you have a problem."

Schultz said another problem is data overload. "Organizations have huge amounts of data and they don't know what to do with it," he said. "Most market research activities focus on getting more data, but what we really need is better analysis."

A final problem, Schultz said, is the changing media landscape. He said market research needs to take into account the fact that most media users do not consume a single medium at one time; rather, they multitask with several media.

Schultz collaborated with market researcher BigResearch to develop a Simultaneous Media Consumption System, a service provided by Big-Research, which measures respondents' consumption of 28 different media. "Marketing can't and won't get any better until we totally rethink and reinvent market and marketing research," Schultz said. M

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