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Dealing with Sticker Shock

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The following is an excerpt from an archive edition of the Nelson Research Bulletin and seems even more relevant today than it was years ago.

The costs of marketing research studies have a high “shock effect”.  Marketing research is not a profit center.  The value is not easily seen on the bottom line.  Therefore, in a “tight money economy,” dwindling research budgets are the rule rather than the exception.  Saving money is always a virtue.  But it is never a long-term solution to lack of business growth.  Marketing research studies help marketers to make informed business decisions.  This means taking advantage of business growth opportunities by learning, ahead of time, the probabilities of success.  It also means having the ability to avoid risks involved by making wrong business decisions.

The following event illustrates how I overcame the “sticker shock” effect of research costs by providing a perspective for thinking about price/value issues.

When I was a Senior Vice President, Director of Marketing Research at Marshalk, I presented a plan to conduct a market segmentation study to Ike Herbert, then the Marketing Director at Coca Cola (one of the agency’s clients).  The cost of the study was approximately $200,000, which was quite a sizeable sum in those days.  Ike responded, “You have to be kidding.  That’s a lot of money even for Coca Cola.”  My response was, “What’s the probability that the results of a comprehensive segmentation study would yield insights for developing marketing and advertising plans, which would result in sufficient added business in year one to pay for the study?”  Ike laughed and said, “We waste more than that in spilled gallonage each year. You’ve got the study.”

The study proved to be a goldmine for revealing strategies, which when implemented, resulted in impressive gains for the Coca-Cola Company.

In situations when the research budget for the year has been depleted, but your information needs have not, it is like running into a brick wall to get more funding, since it is not readily apparent how the results of the studies contribute to increased sales.  Perhaps the following arguments can reduce the hardness of the “brick wall”.

  • How much incremental dollar opportunity will be lost by not developing optimum positioning strategies for our products?

–       Strategies to attract more prospects

–       Strategies to get more business from current customers

–       Strategies to discourage customer attrition

  • What risks are incurred by failing to understand the customer/prospects needs through “their eyes” (rather than through our eyes)?

Finally, what is the likelihood that an intense and creative analysis of the studies will inspire marketing strategies, which will yield incremental business far in excess of the costs of the studies? Once you have succeeded in getting management to look beyond the “shock value” of marketing research costs by putting a perspective on the value of the insights provided, the next challenge is finding the money.  Sometimes a little creative game-playing arithmetic can help.  If the cost of a study were taken from the advertising budget, how much would that really weaken the advertising impact?

One last thought on Ron Nelson’s business philosophy.  When I was on the client end of the business, I did not want to be remembered as the Research Director who saved the company $200,000.  Rather, I wanted to be remembered as the Research Director whose studies and analyses resulted in developing and implementing marketing/communicational strategies that produced incremental sales of several million dollars.

 

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