Center for Strategy Research

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• Vol 4 Issue 10, November 2008

Hello!

The economy has slowed, and for many companies, that means a slow down in research spending as well. This month, we explain the error in that approach and point out the opportunities which a down market offers to alert market researchers.

As always, please click here to send us your thoughts and comments.

Julie Brown President

Mark Palmerino Executive Vice President

The Down Market Opportunity

Whether you’re pleased or not with the outcome of the recent presidential election, I’ll bet you’re happy that the election itself is finally over (me, too).

We can now return (at least for a little while) to keeping an eye on the smaller, more local issues in our respective cities and towns. Things like education, zoning, taxes and (coming soon) snow removal!

Where I live, and in many of the surrounding communities, one perennial topic of debate is the school budget. How large should it be? What should it include? What are its priorities?

Having watched the wrangling on this topic over the years, I’ve come to one conclusion: Where you stand on the school budget question is largely a function of the lens through which you view the issue:

If you view school spending as “a cost to be contained,” you want to cut wherever possible.

If you view school spending as “an investment in our future,” you want spending to stay level, or even increase.

In most companies, market research funding works the same way. In other words, the stance you and your colleagues take on the question of “How much?” — particularly in these tough economic times — is very much tied to the way in which market research is viewed within your organization.

If it’s a cost, you slash it. If it’s a path to success, you invest in it. In our view, market research as an investment is the clear choice.

Research as an investment

In many industries, research has long been recognized as the essential ingredient on the path to long-term profitability.

Oil companies generate revenue from oil sales, but not until they’ve spent billions of dollars in research. Pharmaceutical companies generate revenue from drug sales, but only after years of research in development and clinical trials. Even professional baseball teams know that finding and tracking promising players — in some cases as far back as middle school — is the key to future ticket sales.

For these industries and others, the research function itself is step one in the revenue generation process.

By the same token, your company has an opportunity to solidify its continued success through research. By investing in better information — about your customers, about your competition and about your market — you help to maintain and improve your competitive position and bottom line. In a down economy in particular, it’s more important than ever to stay focused.

Indeed, as technology analyst Chris Shipley observed in a recent New York Times article, “The worst thing that a company can do right now is go into hibernation, into duck-and-cover. If you just sit on your backside and wait for things to get better, they’re not going to. They’re going to get better for somebody, but not necessarily for you.”

Research as a profit center

Personally, I’ve always been a supporter of the school budget in my town… and it has nothing to do with whether I have kids in the school system. Better schools are correlated with higher property values and I view my investment in the school system as a step towards growing the value of my home. In this way, the school budget is a profit center for me.

There have been some interesting findings to suggest that research may have a similar effect on a company’s bottom line.

For example, a Harvard Business Publishing article, entitled, “How Surveys Influence Customers,” found that a simple, 10-minute customer satisfaction survey performed by a financial services company led to significant increases in the opening of new accounts (three times as many) and decreases in customer defection (half as many).

These findings and others suggest that research itself may increase client profitability.

A down market is an opportunity

We’ve been conducting research for a long time and have found that economic downturns present market research opportunities, as less farsighted companies cut back.

First, because with fewer companies vying for their attention, research participants are more available in general and more influenced by incentives. Second, as competing companies scale down their research, it offers the rest of us an opportunity to “widen our lead,” by continuing to gain insight into the markets in which we work.

In the end, it’s critical that we as market researchers understand and promote — particularly within our own companies — the benefits of continued investment in the work we do. Because while the easy and obvious decision may be to simply cut research spending “until things pick up again,” it is precisely during the down times when the risks and potential opportunities are the greatest.

— Mark