Marketers have begun re-investing in research, but they are returning to a different game in which outsourcing reigns and measurable results are key
By Kate Maddox
B-to-b marketers are carefully managing their market research investments in a recovering economy to better understand their target customers and how to sell to them. For many companies, research was one of the first budget areas to get cut during the recession, although some marketers continued to invest in research throughout the slump.
According to a BtoB e-mail poll conducted last week among more than 215 marketers, 45/5% said they were increasing their market research budgets this year. Nearly an equal number, 46%, said their budgets would remain unchanged, but only 8.5% said their budgets would decrease.
Companies are beginning to spend again on market research after a few years of slow growth, according to Larry Gold, editor and publisher of "Inside Research," a newsletter that tracks market research spending.
In 2003, spending on market research in the U.S. is expected to be up between 3% to 4% over 2002, to roughly $6.5 billion, Gold said. The publication was still compiling 2003 data at presstime. "Last year was not supposed to be a good year in terms of market research spending," Gold said. "I'm surprised it's up so much."
He said the growth is due to the success of large syndicated market research providers, such as NPD and VNU.
Gold said qualitative research is expected to be up roughly 5% in 2003, following a down year in 2002.
Virtually all companies are outsourcing their market research rather than doing it in-house, Gold added.
"Researchers want to spend most of their time understanding management issues and translating those into research designs they can give to outside research companies," Gold said.
One of the biggest growth areas is online research, which was up 20% in 2003 and is expected to be up 19% in 2004, Gold added. Online research will make up about 25% of all survey-based research in 2004, he said.
"For companies like ours, with very technical products, it wouldn't be a wise move to eliminate market research," said Jolene Wiley, director of category management and trade marketing for Fuji Photo Film, which has had to adapt its film and digital imaging products to a rapidly changing marketplace. Fuji sells its products to consumers, professional photographers and businesses. "If you don't have market research to help you figure out what is changing and what the future will be, you will be left behind," Wile said.
Although she declined to disclose Fuji's market research budget, Wile said it is a priority for the company and is funded out of marketing across departments, depending on the project.
Fuji, like many companies, uses a combination of market research resources to study its industry, competitors, audience and channel strategy.
At the highest level, Fuji relies on data from the NPD Group to study the market for its different products, ranging from digital cameras to ink jet photo paper.
Fuji uses NPD's monthly market tracking reports to find out what products are performing better, how the competition is doing, what the price points are and which products are selling best at different retail stores.
Fuji also does custom research using a variety of research partners, and it conducts internal research for "down and dirty" projects when quick information is needed, such as changes to package designs, Wiley said.
She said that in such a fast-moving environment, "The thing that is most important is getting the information as soon as you can to make decisions."
NPD currently provides its core market reports on a monthly basis, although it rolled out a new reporting service last year called Fast Follow-Ups, which provide in-depth follow-up reports with panelists who participated in a recent NPD tracking study. Topics for the Fast Follow-Up reports range from how customers use a company's products to gauging immediate reaction on new marketing campaigns. Results are usually available within days.
"With Fast Follow-Ups, we're helping our clients go even deeper," said Sima Vasa, president of NPD TechWorld, the technology tracking division of NPD Group.
Marketers targeting enterprise customers say that with an increased focus on ROI, market research must be used to fully understand the target customer and its buying behaviors.
"Successful vendors must know the business issues of their target audiences," said James Tucker, senior marketing manager of PeopleSoft Enterprise Performance Management (EPM) marketing.
"Market research can provide the necessary information such as planned implementation costs, expected rate of return and time to value. These often have the greatest impact on our prospect's buying decisions," he added.
PeopleSoft EPM marketing uses a combination of market research resources, including data from NPD, IDC, Gartner and the Gantry Group, as well as its own propriety research. PeopleSoft EPM developed its own ROI calculator, which measures the potential rate of return for customers purchasing software for various business processes.
Another growing area is custom research, conducted by research firms such as TNS NFO and RoperASW.
Julie Cox, director of b-to-b research at TNS NFO, said business-to-business clients are doing much more custom research to look at relationships with all their key partners.
"This goes way beyond customer satisfaction research," Cox said, noting that these companies are interested in stakeholder satisfaction, particularly their relationships with channel partners. "Managing channel relationships is becoming very, very complex, and clients are doing research to look at satisfaction levels among their distributors and value-added resellers," Cox said.
TNS NFO uses an analytic tool called TRIM, which was introduced in North America in 2001, to evaluate relationships between a client and its customers, employees, shareholders and partners. Another trend in market research is more qualitative data and interpretation of quantitative data, Cox said.
"We need to be able to provide our clients more than just tabulated reports," she said.
TNS NFO has several industry sector experts to interpret reports and provide insight for clients. "We are being called to share in the responsibility for analyzing data and providing viable solutions," Cox said.
Some marketers are much more limited in their use of market research, choosing to focus on specific projects or customer segments.
VFA, which provides capital planning and asset management for facility providers, uses market research to quantify the benefits its customers receive from its services in order to provide information to its sales force.
"Our budgets are tight, so we're looking for very quantifiable projects," said Joan Lockhart, VP-marketing at VFA.
"We don't do large, broad-based research," she added.
Lockhart said the company's research is typically funded out of the marketing budget, but the customer benefits assessment was funded out of the sales department since this effort would result in a tool to help the sales force.
VFA used the Gantry Group, a management consulting firm that provides ROI assessment for technology-driven businesses. Gantry conducted in-depth interviews with VFA's customers, including government organizations, educational institutions and businesses that own and manage large facilities.
"We knew the benefits our customers were getting, but we didn't really have numbers around them," Lockhart said.
The research identified 10 core areas of savings that customers could quantify using VFA's capital planning services, resulting in an ROI calculator the sales force now uses to develop credible ROI scenarios for prospects.
"ROI is the hottest area of market research today," said Dawna Paton, managing partner of the Gantry Group.
"We have seen an increase in interest in market research to support ROI," she added. Gantry uses primary research, including offline and online focus groups with customers, to develop ROI assessment, competitive analysis and industry white papers.
"Companies are investing in market research to develop a credible ROI program," Paton said. "That is where we're finding more people are willing to spend money."
By William A. Cook
Increasingly, boards and CEOs are calling for hard empirical evidence that proposed marketing expenditures will yield greater profitability. An Advertising Research Foundation survey of CEOs in 2000 revealed that "enhanced return on marketing investment" was one of the top priorities they set for their marketing and research functions. A survey this year by the Association of National Advertisers of its members established that brands and measur-ing effectiveness are the No.1 and No. 2 issues on their minds.
Clearly, the message has gotten through. Marketers are investing time, money and talent in improving the measurement of their return on marketing investment (ROMI). While b-to-c firms took the lead in the 1990s, b-to-b companies now are making large strides and closing the gap.
Where would you rate your company on the three key principles that have emerged from the ARF's ROMI benchmark studies-discipline, metrics and advanced analytics.
Discipline: Establishing a ROMI discipline is a critical first step to reaping improved returns. Consistent, rigorous follow-through is requisite to developing a ROMI process that speeds decision-making and enhances marketing judgment. Citicorp, one of ARF's 2003 best practice firms, has a team that mentors and oversees how definitions are applied, data reported and metrics calculated across the dozens of Citicorp business units around the globe.
ROMI-managed companies almost without exception have a person with sufficient credibility, conviction and clout to instill a ROMI focus across the organization. That leadership is vital because successful ROMI programs require broad commitment and cooperation across functional departments and business units. The leader in several of the best practice companies has been the CEO, but senior marketing executives have also filled the ROMI champion role.
Metrics: Consensus is required on the definitions, measures and analytic approaches that the ROMI metrics are built on. Companies that fail to gain consensus won't be able to maintain a consistent read on their costs and returns. There can't be a different ruler in each corner of the company if the goal is to demonstrate and improve ROMI.
In an ARF-Association of National Advertisers survey of senior marketers in 2000, marketers reported a wide range of metrics that were in use in their companies. Some of the measures were quite far removed from sales but had been related to sales in previous analyses, tracking measures such as awareness of the brand or of the advertising, for example. Others were profitability and payout measures that were familiar to finance managers as well as marketers. As ROMI initiatives become more established, the metrics can be expected to become more financially related.
Advanced analytics: Over the last three decades marketing measurement has shifted from simple sales tracking to market share in the early 1980s to adding revenue targets to market share targets as the ROMI metric. No one wants to cede share to the competition, but no one wants to buy share through lost revenue either.
In the 1990s, it was recognized that some revenue could be unprofitable or less profitable than intended when ineffective events, promotions or advertising results in goods sold at prices that don't generate sufficient gross margin to put any money at all on the bottom line.
At each step along the way toward today's focus on marketing payout, the analytic tools used have grown in complexity and in the amount of data and expertise needed to develop the underlying models.
No discus-sion of research and ROMI today would be complete without a word about the impact of the online channel. Marketers of consumer products ranging from trucks to bar soaps have been spending large sums to measure the ROI of their online marketing programs. They want to know the impact on ROI of shifting to online advertising money they've been investing in television, print and radio.
Before this recent interest in testing online ROI, spending experiments had declined among b-to-c marketers over the last two decades. Instead, they set their analytic teeth into mountains of retail data-combing for gains from "naturally occurring media-spending variation." The return to in-market experiments reveals the difficulty marketers face in placing a value on their online budgets at low spending levels and their need to "get online spending right."
Evaluation of your marketing spending is an offensive investment, not a defensive one. It's not about justifying to someone in finance or up in the C-Suite that you're spending your budget wisely, it's about finding ways to get even larger returns. Measuring to grow ROMI is a wise investment.
Marketing ROI benchmarking studies led by the ARF over the last three years have shown that managers applying ROI metrics-based decision processes make faster decisions and have fewer criticisms from "Monday morning quarterbacks" afterwards. One key contributor to their improved decision-making is the trust in the system shared by marketers and other managers. Don't suppose that these b-to-b execs are putting blind trust in a complex scheme; rather, they are building confidence in a judgment process that is constantly fed new learning through methodical ROI measurement of their marketing activities.
Companies that implement marketing ROI programs, with integrated measurement of marketing expenses and performance, typically show meaningful ROI gains within two years.
William A. Cook is senior VP-research & standards for the Advertising Research Foundation. He can be reached at [email protected]
By Kate Maddox
Buffalo Technology USA, the U.S. subsidiary of Japanese networking company Buffalo Inc., had two major challenges: entering the U.S. market and introducing a new product.
In 2000 and 2001, the standard for wireless networking devices in the U.S. was 802.11b technology. Buffalo, which entered the U.S. market in 2000, marketed 802.11b-compliant products, but it wanted to introduce a new series of products based on 802.11g, a higher-speed version of the wireless LAN technology that had not yet been standardized.
Morikazu Sano, VP of Buffalo Technology, said the company's first task was to figure out the total market size for 802.11b "and then, based on that market-sizing information, figure out how much of the market would shift to 11g by the end of 2002."
To learn the market size of 802.11b products in the U.S., Buffalo used research reports from NPD Techworld and Reed Electronic Group's In-Stat/MDR.
Buffalo used the NPD data to size the retail market in which it would sell its products through distributors and the In-Stat/MDR data to study the SOHO (small office home office) market.
The market research, which was funded by Buffalo's product marketing group, was also used to help the company determine its channel strategy.
For example, the NPD data showed the retail market for wireless networking products was growing rapidly in the U.S., so Buffalo made that an important channel through distributors such as Comp USA, Tech Data Worldwide and Wynit.
Buffalo launched its line of 802.11g products at the fall Comdex show in 2002.
After the product launch, it partnered with publications such as PC World and PC Magazine to understand buyers' perceptions of the product and its marketing.
"We wanted to see how much awareness we had created so far through the marketing activities we did with these publications, and if we were reaching the right customers through these publications," Sano said.
The research paid off.
Buffalo's overall sales increased 500% from 2002 to 2003, and sales of 802.11g products now make up 90% of total revenue, Sano said.
Company: Ameritest/CY Research Location: Albuquerque, N.M. Phone: (505) 856- 0763 Key Exec: Charles Young, president and CEO Services: Copy testing
Company: The ARS Group Location: Evansville, Ind. Phone: (812) 425-4562 Key Exec: Wade Holmes, VP-global marketing communications Services: Copy testing
Company: Copernicus: The Marketing Investment Strategy Group Location: Auburndale, Mass. Phone: (617) 630-8750a Key Exec: Kevin J. Clancy, chairman-CEO Services: Marketing consulting
Company: Directions Research Location: Cincinnati, Ohio Phone: (513) 651-2990 Key Exec: Randolph N. Brooks, president Services: Full-service marketing research
Company: The Gantry Group Location: Concord, Mass. Phone: (978) 371-7557 Key Exec: Dale Troppito, managing partner Services: Management consulting
Company: GfK Custom Research Location: New York, N.Y. Phone: (212) 330-1484 Key Exec: Barry M. Feinberg, senior VP Services: Full-service marketing research
Company: Harris Interactive Location: Rochester, N.Y. Phone: (585) 214-7561 Key Exec: Craig Westervelt, marketing manager Services: Full-service marketing research
Company: Information Resources Inc. Location: Fairfield, N.J. Phone: (973) 244-5308 Key Exec: Doug Jensen, senior-VP, modeling consulting Services: Advanced analytics
Company: Ipsos-ASI Inc. Location: Norwalk, Conn. Phone: (203) 840-3408 Key Exec: Gerald Lukeman, chairman emeritus Services: Advertising and brand research
Company: In-Stat/MDR Location: Scottsdale, Ariz. Phone: (480) 483-4468 Key Exec: Mark Kirstein, VP-general manager Services: Digital communications and market research
Company: J.D. Power & Associates Location: Westlake Village, Calif. Phone: (805) 418-8620 Key Exec: Thomas E. Healey, partner Services: Marketing information
Company: Knowledge Networks Location: Menlo Park, Calif. Phone: (650) 289-2100 Key Exec: Douglas Rivers, CEO Services: Survey research
Company: Lieberman Research Location: New York, N.Y. Phone: (212) 290-8133 Key Exec: Stephen Miller, president-CEO Services: Full-service marketing research
Company: M/A/R/C Group Location: Irving, Texas Phone: (972) 506-3400 Key Exec: Sharon Munger, president-CEO Services: Full-service marketing research
Company: Maritz Research Location: St. Louis, Mo. Phone: (636) 827-4319 Key Exec: Debbie Paule, marketing director Services: Full-service marketing research
Company: Marketing Evolution Location: El Dorado Hills, Calif. Phone: (415) 559-9374 Key Exec: Rex Briggs, principal Services: Media analytics
Company: Marketing Management Analytics Location: Wilton, Conn. Phone: (203) 834-3399 Key Exec: Sunny Garga, COO Services: Advanced analytics
Company: Millward Brown Location: New York, N.Y. Phone: (212) 614-6002 Key Exec: Mary Ann Packo, chief client and marketing officer Services: Full-service marketing research
Company: Moskowitz Jacobs Location: White Plains, N.Y. Phone: (914) 421-7400 Key Exec: Howard R. Moskowitz, president Services: Brand research and consulting
Company: MSW Group Location: Lake Success, N.Y. Phone: (516) 471-7575 Key Exec: Peter Klein, president-COO Services: Advertising research
Company: MOP World Location: New York, N.Y. Phone: (212) 240-5446 Key Exec: Mark Hardy, chief marketing officer Services: Full-service marketing research
Company: TNS NFO Location: Northwood, Ohio Phone: (419) 725-8560 Key Exec: Melanie Mumper-Dickerson, VP-corporate marketing Services: Full-service marketing research
Company: The NPD Group Location: Port Washington, N.Y. Phone: (516) 625-2300 Key Exec: Tod Johnson, CEO Services: Consumer sales tracking
Company: Research International Location: Stamford, Conn. Phone: (203) 358-0900 Key Exec: Lorna Walters, CEO Services: Full-service marketing research
Company: Spectra Marketing Systems Location: Riverside, Conn. Phone: (312) 583-5116 Key Exec: Mark Green, senior VP Services: Analytical services
Company: Synovate Location: Tarrytown, N.Y. Phone: (914) 332-5300 Key Exec: Kate Permut, VP-marketing Services: Full-service marketing research
Company: TNS Location: Horsham, Pa. Phone: (215) 442-9000 Key Exec: Bill Guerin, Executive VP-sales & marketing Services: Full-service market research
Company: Wirthlin Worldwide Location: New York, N.Y. Phone: (212) 370-9096 Key Exec: John J. Kennedy, senior VP Services: Strategic research and consulting
Source: BtoB and ARF